Top cable operator Comcast issued its Q3 08 earnings report this morning showing relatively healthy financial performance in the face of accelerating core video customer loss and slowing growth in digital telephony, high-speed data and digital video businesses.
Total revenue grew 7% year-over-year, but only .4% sequentially, reaching $8.13 billion. Cash flow advanced 6.6% year-over-year, but dropped 3.3% sequentially, to reach $3.25 billion. Comcast continued to pump up its free cash flow (cash flow less capex), which rose 77% year-over-year, but dropped 20% sequentially, to $928 million.
Despite the excess cash, Comcast may not complete its previously announced stock buyback program by the end of the year, as anticipated, CFO Michael Angelakis said during the company's earnings call. With the capital markets in crisis, Comcast will play it safe in terms of taking on more debt.
Free cash flow growth was aided in part by lower capex spending on consumer premises equipment, expenditures which dropped due to fewer installations of service for new subscribers and fewer installations of new services for existing customers. During the quarter Comcast lost 147,000 net basic customers, a loss that tops any other quarterly basic subscriber slippage since at least Q1 06. By quarter's end, Comcast counted 24.4 million basic subscribers, which represented a penetration rate of 48.5%, the lowest yet for the operator.
During the earnings call, Comcast CEO Brian Roberts acknowledged the bad economy as a possible challenge to further growth but said that Comcast is well-positioned to ride it out. These are "obviously unique and challenging economic times in the U.S.," he said. The picture won't brighten anytime soon, he suggested. "A lot of our planning is that the fourth quarter is a worse period."
COO Steve Burke, however, said that the bad economy can be both good and bad for Comcast's subscriber growth. Even as fewer customers are signing up for service, primarily due to slow housing starts, churn is down because the population is less mobile.
Aside from losses associated with Hurricane Gustav, the real culprit behind the subscriber loss is competition from the phone companies, particularly AT&T, which has stepped up deployment of its U-Verse multichannel video service. "Clearly we’ve seen a shift of late where AT&T has become a more aggressive competitor than they were," Burke said.
In terms of Comcast's efforts to swipe customers from the telcos, the company added 433,000 net new digital voice customers during the quarter, a run-rate that is down 29% year-over-year and 13% sequentially.
On a seasonal basis, high-speed data growth cooled too, although growth in this service category remained relatively strong. During the quarter, Comcast added a net 382,000 broadband customers, up 37.4% over Q2 08 levels but down 19.4% from the gains posted in the year-ago quarter.
Digital service subscriptions, which should already be gaining lift as consumers prepare for the coming digital TV transition, showed the same pattern. Comcast added 471,000 net new digital customers during the quarter, up by 47.2% sequentially but down by 6.4% year-over-year. During the earnings call, Burke said that consumers are distracted and not focusing on the digital transition.
(Download detailed data on Comcast's current and historical financial and operating performance here.)
Cynthia Brumfield at 2:45 PM|Comments(0)
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