Comcast earnings prove that cable is back
Cable stocks, once the bane of Wall Street, are zapping to recent highs, thanks to superior broadband offerings.
(Fortune magazine) -- If anyone needed a further sign of cable's resurgence, it came today in the numbers issued by Comcast, the nation's largest cable player. And it comes at a crucial moment in the telecommunications business -- just a week before expected government approval of the mega-merger between AT&T and BellSouth, a combination seen as necessary to give the telcos the scale to compete with cable.
Fears over competitive threats have driven down cable stocks for years. But when Wall Street realized those fears were overblown, the stocks mounted a comeback -- Comcast (up $1.24 to $40.00, Charts), for example, hit a new 52-week high this week. Perhaps the most bullish sign for the cable industry was the company's robust gains in broadband Internet subscribers. The Philadelphia-based Comcast added 536,000 broadband subscribers in the quarter -- which "stands in stark contrast to the disappointing broadband results posted by both AT&T and BellSouth earlier this week," wrote Craig Moffett, analyst at Sanford Bernstein, in a research note.
Scoring with triple play
Driving the gains, according to Moffett, is Comcast's digital voice service, available at prices below many of the traditional phone companies. Comcast has been offering its "triple play" package that includes cable TV, high-speed Internet and voice service for just $99 a month. As a result, some customers who had fled Comcast and other cable companies for low-priced DSL Internet service from the phone companies are now switching back. "In essence, they chose DSL over cable to save $10 on broadband, and now they're switching back to save $20 on phone," Moffett wrote. Moffett also noted that many customers see DSL -- which is slower than the typical cable modem -- as an interim step in the transition from dial-up to cable Internet. "If so, cable operators like Comcast may regain share imply by waiting," he wrote.
Overall, Comcast reported a surge in its quarterly figures: net income hit $1.22 billion, or 58 cents per share, compared with $222 million, or 10 cents a share, in the year ago period. Stripping out some $669 million in gains from acquiring some of the systems of bankrupt cable operator Adelphia, net income came in at $548 million, or 26 cents a share. This compares with expectations for a profit of 19 cents a share, according to Thomson Financial.
The company, which in 2004 mounted a failed takeover bid for Walt Disney, has scaled down its once grand plan to become a wide-ranging content company. It owns a piece of movie studio MGM, but has indicated that it has no stomach for a large media acquisition. The company is also in the process of selling the Philadelphia 76ers basketball team.