Co. turns in $560 million in third-quarter profit
Wall Street hit the skip button after Comcast, the nation’s largest cable operator, turned in a surprisingly weak quarter, which it blamed on the home mortgage meltdown and cut-rate competition from satellite and the telcos.
“We’re seeing increasing competition and a softer economy and as a result a slightly slower growth rate,” CEO Brian Roberts said Thursday.
Comcast saw third-quarter profit of $560 million in, down 54% from the $1.22 billion it booked in the same quarter last year. Year-ago total included proceeds from the sale of cable systems to Time Warner. Revenue grew 21% to $7.8 billion from $6.4 billion a year ago.
Shares in the company dropped 10%, or $2.41, to $21.44 in Thursday trading on fears that slower growth on all fronts signaled an inherent problem with cable, which is now competing with the telcos on video service as well as satcasters EchoStar and DirecTV.
Comcast’s disappointing results threatened a contagion for all media stocks with cable exposure, such as Time Warner, Cablevision, Mediacom and Charter Communications, which all fell in Thursday trading.
“In 2006, cable was the darling and could do no wrong,” said Alan Gould, media analyst for Natixis Bleichroeder. “But in 2007 the growth story has definitely come under some question. People aren’t completely sure now about the delivery of content being through cable.”
Comcast lost 65,000 subscribers overall vs. a year earlier, ending the quarter with 24.2 million cable subs. Comcast’s biggest markets are San Francisco, Philadelphia, Chicago and Boston.
Company added 489,000 digital cable customers for a total of 14.7 million, but growth in this higher-margin category of customer is slowing. It added 12% fewer digital video customers than last year.
Comcast’s other high-growth areas, such as high-speed data and digital phone, also added customers but at a rate slower than last year and slower than expected by Wall Street.
“In general, most metrics were below our estimates,” said Oppenheimer analyst Thomas Eagan in a research note.
Eagan noted that telco Verizon now offers phone, data and video service in 4%-5% of Comcast’s markets.
Verizon’s FiOS subscription TV service uses fiber optics to deliver video, data and phone service which, like cable, costs about $100 per month.
Comcast chief operating officer Steve Burke said both satcasters and telcos are “spending a lot more money and discounting more than ever before” in a conference call with analysts.
He cited AT&T, which is offering free high-definition programming for a year for new video subscribers.
On the programming side, revenue attributed to Comcast cable networks E! Entertainment Television, Style Network, the Golf Channel, Versus and G4, rose 27% to $330 million, reflecting higher ratings, ad revenue and license fees.
The company announced it added $7 billion to its share buyback program, raising the total to $8.2 billion over the next few years.