broadband internet growth engine sputtered in the second quarter, with the cable company managing to grow revenue and earnings but showing zero growth in its lucrative broadband internet subscriber base. NBCUniversal media-segment results were fine, while Sky topped earnings estimates.
Comcast (ticker: CMCSA) stock slid more than 5% in Thursday’s pre-market trading. Comcast’s report dragged down other cable stocks as well:
(ATUS) were 7.7%, 3.5%, and 1.3% lower, respectively.
On Thursday morning, the nation’s largest cable company reported $30 billion in revenue in the second quarter—up 5% year over year and about $300 million more than the Wall Street consensus estimate. Net income was down 9% to $3.4 billion, or 76 cents per share. After adjusting for acquisition-related costs and changes in the value of investments, Comcast’s earnings per share were $1.01, up 20% from the year-ago period and ahead of analysts’ average forecast for 91 cents, according to FactSet.
Comcast’s adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—rose 10% to $9.8 billion. That compared with the analyst consensus of $9.4 billion. Comcast’s free cash flow dropped 34% year over year to $3.2 billion, and missed the $3.8 billion Wall Street estimate.
The biggest surprise in the quarter came from Comcast’s Xfinity business, which has been the strongest driver of the company’s performance in the past few years.
Cable subscriber growth has slowed industrywide in recent quarters, partly due to a postpandemic hangover and partly due to greater competition from wireless carriers’ nascent over-the-air internet services, called fixed-wireless access, or FWA, and new fiber-based networks .
) are adding hundreds of thousands of FWA subscribers per quarter, while
(FYBR), and others are laying miles of ultra-fast fiber and taking share from slower technologies.
Those pressures showed up in Comcast’s cable segment, its largest: The company didn’t add any broadband subscribers in the quarter. Analysts on average had been looking for net adds of 82,000. Comcast also lost 521,000 video subscribers, and added 317,000 wireless lines—competing with wireless companies on their turf as well.
Comcast added 2 million high-speed internet subscribers in 2020 and 1.3 million in 2021. In the first half of 2022, the company has added 262,000.
Comcast’s strategy isn’t all about growing subscribers, however. Management is confident that the company’s cable business can expand profit margins fast enough to keep earnings growing, despite the slowdown in customer growth. That worked out in the second quarter: Segment revenue was up 4% to $16.6 billion, and adjusted Ebitda was up 5% to $7.4 billion. That’s an adjusted Ebitda margin of a whopping 45%—a record high for Comcast.
On Thursday morning’s earnings call, Comcast CEO Brian Roberts highlighted the segment’s growth despite flat subscriber performance, and blamed the slowdown on fewer people moving, a reversal of pandemic trends, and more competition from FWA and fiber. He said he sees cable subscriber growth returning over the long term.
For investors, a return to broadband subscriber growth may be a necessity for Comcast stock to work again. Shares had lost 24% after dividends over the past year through Wednesday’s close, versus a 7% loss after dividends for the S&P 500.
Comcast’s NBCUniversal segment generally matched expectations for the second quarter, earning adjusted Ebitda of $1.9 billion, up 20%, on revenue of $9.4 billion, up 19%. The biggest growth came from the segment’s movie studio and theme parks businesses, while TV grew more slowly. Peacock streaming subscribers held steady from the end of the first quarter, at about 13 million.
Finally, Sky revenue dropped 14%, to $4.5 billion, and would have been down about 4% after adjusting for currency fluctuations. The European pay-TV and media company does business in euros and pound sterling, which have both weakened substantially versus the US dollar this year. Sky’s adjusted Ebitda was up 54%, to $863 million, or 74% sans FX changes. The revenue figure was less than Wall Street analysts had been expecting, while earnings were higher.
In the second quarter, Comcast spent $2.4 billion on capital expenditures, $3.0 billion on stock buybacks, and $1.2 billion on dividend payments. The stock currently yields 2.5% per annum.
Write to Nicholas Jasinski at firstname.lastname@example.org