The owner of NBCUniversal and one of the nation’s largest MSOs enjoyed an Olympic boost to its revenue in Q3, as Comcast Corp. beat the consensus estimates of Wall Street analysts.
Investors went into sell mode, however, and shares of CMCSA were down 2.4% in midday trading. At the closing bell, Comcast shares were down 3%, to $62.56.
Consolidated Revenue increased 14.2% in Q3, to $21.3 billion. This includes $1.6 billion of revenue generated by the broadcast of the 2016 Rio Olympics during the quarter, of which $1.2 billion is related to advertising revenue.
Even excluding the Olympics, consolidated revenue increased 5.5% — a good sign for Comcast come Q3 2017, making year-to-year comps a bit more favorable.
Operating income grew 11%, from $4 billion to $4.44 billion. Net income increased from $2 billion (80 cents per share) to $2.24 billion (92 cents). This beat analysts’ consensus estimate of 91 cents per share.
So why did Comcast shares fall following the release of a relatively good Q3?
Cash flow issues could be the answer.
Net Cash Provided by Operating Activities decreased 17.4%, to $4.1 billion, in Q3, while Free Cash Flow (FCF) slumped 48.5%, to $1.4 billion. Comcast said the fall in FCF is tied to higher working capital tied to the Summer Olympics coverage from Rio de Janeiro. An increase in capital expenditures is also to blame for the dip in FCF, with “a higher level of investment in scalable infrastructure to increase network capacity,” in addition to increased dollars put toward its Xfinity WiFi gateways and X1 platform.
NBCUniversal’s capital expenditures increased 16.3%, to $336 million, thanks to increased spending at its theme parks, which now include Universal Studios Japan.
For the nine months ended Sept. 30, net cash fell 2.3%, to $13.5 billion, compared to the first three quarters of 2015. At the same time, free cash flow dipped 23.8%, to $5.6 billion.
CABLE STILL STRONG
Yes, “cord-cutters” exist and they are a concern for cable service providers such as Comcast.
But Comcast is quite healthy with its cable revenue, and “video” consumers — a.k.a. people who have Comcast cable services — are driving the segment’s revenue.
Total Cable Communications Revenue increased by 6.9%, to $12.56 billion. This was paced by Video revenue, which jumped 4.5% in Q3, to $5.59 billion. High Speed Internet is seeing faster growth, however, with revenue up 8% year-over-year in Q3, to $3.41 billion.
If investors had any reason for concern, it would be in its growth rate of the cable segment’s core Video business. A net addition of just 32,000 was seen by Comcast for video customers in Q3. But, that beat analyst expectations. By comparison, high-speed internet customers accounted for a net addition of 330,000 customers.
Meanwhile, “Triple Play” customers again outnumber that of double-product or single-product customers, a sign that bundling options are popular with Comcast’s clientele. But growth of triple-product consumers is tepid, with just 4,000 additional subscribers year-over-year seen by Comcast.
TV FUELED BY RIO GAMES
Blame it on Rio, and that’s a good thing: Broadcast television revenue soared by 56.6% in Q3, to $3.09 billion, as Cable Networks revenue jumped 22%, to $2.94 billion.
Excluding the Olympics and Super Bowl 50, broadcast television revenue dipped by 3.6% year-over-year in Q3 — another sign of weakness that investors may be reacting to.
NBCUniversal’s cable networks fared better, with quarterly revenue minus the Olympics up 4.1%, to $2.51 billion.
STUDIO SLUMP THE ROOT OF STOCK SLIDE?
Comcast, like Viacom, has a Hollywood studio with a profit problem.
NBCUniversal’s Filmed Entertainment unit, which includes Universal Studios, saw Q3 revenue fall by 7.9%, to $1.79 billion.
The quarter was paced by the animated feature The Secret Life of Pets, which according to BoxOfficeMojo.com has grossed $366.2 million on a budget of $75 million since its release 12 weeks ago.