Comcast Earnings: Solid Broadband Metrics Drive Strong Quarter Overall

Comcast’s CMCSA net broadband customer losses during the second quarter were significantly smaller than feared, while pricing discipline continued to drive impressive margin expansion. Our fair value estimate remains $60 per share.

The U.S. broadband business displayed far less seasonality than is typical. Comcast lost 19,000 net broadband customers versus a net gain of 5,000 during the first quarter; in years past, this customer metric has typically been about 150,000 customers weaker sequentially in the second quarter. This result supports the view that customer defections have hovered near record lows amid muted household moving activity. Fixed-wireless offers from T-Mobile and Verizon are taking a sizable portion of new connections but are leaving enough share for cable to roughly hold customer counts flat. Average revenue per U.S. broadband customer marched higher, increasing 4.5% versus a year ago. The sharp increase in AT&T’s fiber broadband revenue amid slowing customer growth this quarter and Verizon’s plan to increase fixed-wireless broadband prices lend credence to our view that broadband competition remains rational.

The new connectivity segment, which combines U.S. and international operations, reported flat revenue versus a year ago, but segment EBITDA increased 4.4%. The shift away from the low-margin television business remains a tailwind, and Comcast has shown impressive cost control across the business.

Media segment revenue was also flat year over year, with growth at Peacock offsetting the decline of the traditional television business. Segment EBITDA declined 18% on heavy investment in Peacock. We remain skeptical of the strategy with this business, as we believe it generally has put too much content on the platform. Peacock added 2 million net paying customers during the quarter to reach 24 million. Even with the writers’ and actors’ strikes cutting content production, Comcast still expects Peacock will lose $3 billion this year.