Comcast (CMCSA) – Q1 2022 Earnings Beat But Muddled Broadband Growth Leaves Investors Wanting

Comcast (CMCSA) reported earnings before the bell on 4/28/2022. The company performed fairly well, however the stock dipped more than 5% after the earnings call.

Here are the key points:

• EPS: 86 cents per share adjusted vs. 80 cents per share unadjusted, average analyst estimate was 81 cents.

• Revenue: $31 billion versus estimates of $30.5 billion

• High Speed Broadband Customers: 262,000 vs. 229,000 new customers. However, 80,000 of the 262,000 were free subscribers from COVID relief connection programs.

Now let’s go into more detail about the call.

On the earnings call Brian Roberts, CEO and Chairman, provided a statement that provides high level insight into the company’s performance for the quarter: “2022 is off to a great start. Each of our businesses posted healthy growth in adjusted EBITDA, contributing to a double-digit increase in adjusted EPS as well as significant free cash flow generation in the quarter. And we achieved all of this while continuing to invest in our businesses for the long term, while also increasing our return of capital to shareholders.”

As you can see in the image above, revenue is up 14%, adjusted EBITDA increases 8.8%, and adjusted EPS increases 13.2%. Through the quarter, Comcast returned $4.2 billion to shareholders through $1.2 billion in dividend payments and $3 billion in share repurchases.

The NBCUniversal segment (see above), which includes their media, studios, and theme parks, had posted total revenue of $10.3 billion and an adjusted EBITDA of $1.6 billion, 46.6% and 7.4% respective increases on the first quarter of 2021.

Roughly 21% of media revenue was broken out as incremental revenue from the 2022 Beijing Olympics and the NFL’s Superbowl. The organic 6.9% increase in media revenue was attributed to higher advertising and distribution revenue.

Comcast’s streaming service Peacock is showing good growth. Their platform added 4 million paid subscribers, bringing the total to 13 million. Total active monthly users rose to 28 million from 24.5 million previously. With 13 million paid subscribers and 15 million active free users, Peacock is uniquely positioned in the market. Their platform is a natural extension of their existing video business with 2 revenues streams (subscribers and paid advertising to free users). Peacock has seen a 25% increase in hours of engagement year over year which shows that the increase in users, which is partly driven by events like the Olympics and the Superbowl, is being retained.

More modest growth for Peacock is to be expected as events slow down in the next two quarters. Once sporting events in the fourth quarter kick off (Sunday night football, premier league, and the world cup), Peacock activity should show more momentum. Studio revenues should increase as well with titles like Minions, Jurassic World Dominion, and the Vampire Academy series kicking off.

The cable communications segment (see above) showed modest growth, with revenues gowning 4.7% to $16.5 billion and adjusted EBITDA growing 6.5% to $7.2 billion.

This growth was driven by increases in broadband, business services, wireless, and advertising revenues. For the quarter, total broadband customers increased by 262,000 which beat the 229,000 average analyst estimate.

However, about 80,000 of those subscribers were free Internet Essential customers. Without those subscribers being included, the actual number of paying customers added to the business is actually around 180,000 which falls far short of the analyst estimate.

On the call, when asked about this, Michael Cavanagh CFO stated that this transitional impact in the net subs added is a result of the ending of the COVID programs where used could come into the service for free. During COVID, they were conservative with how they counted these free subs, however, after ending the program in the end of 2021 only about a third of those customers transitioned to being paying customers. Michael Cavanagh said that there won’t be any ongoing roll forward into the second quarter, therefore he doesn’t think Comcast will experience any negative impact going forward as a result of ending the program. It is essentially cleaning itself out this quarter.

With the performance beating most estimates by a modest amount and the muddled growth of broadband subscribers working itself out through the termination of the COVID relief connection program, I think the dip in stock price is unreasonable. If the second quarter earnings report shows that the free users have been cleaned up and broadband growth continues to trend in the right direction, this dip will have been an overreaction by the market and a great time to add to this dividend paying position at a current yield of 2.6%.