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Why Is Comcast (CMCSA) Up 2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Comcast (CMCSA). Shares have added about 2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Comcast due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Comcast Q2 Earnings Beat, Internet User Base Rises

Comcast reported second-quarter 2020 adjusted earnings of 69 cents per share, beating the Zacks Consensus Estimate by 25.5% but decreasing 11.5% year over year.

Consolidated revenues slid 11.7% year over year to $23.72 billion but beat the Zacks Consensus Estimate of $23.66 billion.

Cable Communication Revenue Details

Revenues declined 0.2% from the year-ago quarter to $14.43 billion. Total Customer Relationships increased 217K to 32.1 million.

High-speed Internet revenues grew 7.2% year over year to $5 billion, primarily driven by increased residential high-speed Internet customers and average rate. Total high-speed Internet customer net additions were 323K.

Cable Communications extended its 60 days of free Internet service offer to eligible new Internet Essentials Customers and free access to public Xfinity WiFi hotspots through year-end.
 
Business Services revenues were up 3.6% to $2.04 billion, driven by customer-base expansion and higher average rates.

Wireless revenues jumped 33.9% to $326 million, supported by an increase in the number of customer lines. Comcast added 126K wireless lines in the reported quarter.

Advertising revenues plunged 29.6% to $428 million, primarily due to coronavirus-induced lower advertiser spending.

Voice revenues were $877 million, down 10.7% year over year due to a declining number of residential voice customers.

Video revenues slipped 3.2% to $5.42 billion, reflecting a decline in the residential video customer count.

Total video customer net losses were 477K while total voice customer net losses were 158K.

Other revenues decreased 11% from the year-ago quarter to $378 million, owing to lower security and automation services revenues as well as waived late fees.

NBCUniversal Revenues Decrease Y/Y

Revenues declined 25.4% year over year to $6.12 billion. The company launched its streaming service Peacock free to Xfinity X1 and Flex Customers on Apr 15. The service debuted nationally on Jul 15 and has already gained 10 million sign-ups.

Cable Networks’ revenues dipped 14.7% from the year-ago quarter to $2.52 billion, primarily due to lower advertising revenues (down 27%) and distribution revenues (down 14.8%).

The year-over-year fall in advertising revenues reflects reduced advertiser spending due to postponement of sports events in the wake of the coronavirus pandemic and continued ratings decline.

Content licensing & other revenues increased 23.1% year over year.

Broadcast Television revenues declined 1.6% from the year-ago quarter to $2.36 billion, courtesy of lower advertising revenues (down 27.9%), partially offset by higher content-licensing revenues (up 58.5%) and distribution & other revenues (up 9.2%).

Filmed Entertainment revenues decreased 18.1% from the year-ago quarter to $1.19 billion. Theatrical revenues fell 96.8% from the year-ago quarter. However, content-licensing revenues increased 19.5% on a year-over-year basis.

Theme Parks revenues were $87 million, down 94.1% year over year. Universal Orlando Resort and Universal Studios Japan reopened with limited capacity in June, while Universal Studios Hollywood remains closed.

Sky Revenue Details

Sky’s revenues deteriorated 15.5% year over year to $4.08 billion. At constant currency (cc), revenues softened 12.9%.

Direct-to-consumer revenues were down 9.4% (down 6.7% at cc) from the year-ago quarter to $3.52 billion. This decline primarily reflected a decrease in average revenue per customer relationship due to the impact of coronavirus, which resulted in lower sports-subscription revenues.

Content revenues fell 37.7% (down 35.7% at cc) to $234 million. This downside reflects lower revenues from sports programming due to suspension of sports events following the coronavirus outbreak.

Advertising revenues deteriorated 43% (down 41.2% at cc) from the year-ago quarter to $321 million, primarily due to overall market weakness, which worsened due to coronavirus as well as the negative impact of a change in legislation related to gambling advertisements in the United Kingdom and Italy.

Pro-forma Total Customer Relationships decreased 214K to 23.7 million in the reported quarter. Markedly, Sky retained 99% of total customers and 95% of sports subscribers since the beginning of the coronavirus pandemic. Moreover, Bundesliga returned in May and the Premier League and Serie A in June.

Operating Details

Consolidated programming & production costs slipped 17.4% from the year-ago quarter to $6.82 billion.

Consolidated adjusted EBITDA fell 9.1% from the year-ago quarter to $7.93 billion.

Segment wise, Cable Communications’ adjusted EBITDA rose 5.5% from the year-ago quarter to $6.18 billion. Cable Communications operating expenses declined 4% year over year on lower programming (down 5%) and non-programming costs (down 3.4%) expenses.

Cable Communications results include a loss of $37 million from the wireless business compared with a loss of $88 million in the year-ago quarter.

NBCUniversal’s adjusted EBITDA decreased 29.5% from the year-ago quarter to $1.64 billion, reflecting a significant decline in Theme Parks (down 167.7%)-adjusted EBITDA partially offset by Cable Networks (up 3.5%), Filmed Entertainment (up 20%) and Broadcast Television-adjusted EBITDA (up 24.8%).

Sky’s adjusted EBITDA declined 2.9% year over year (up 0.2% at cc) to $749 million. Notably, Sky’s operating costs and expenses fell 17.9% (down 15.5% at cc) to $3.33 billion.

Consolidated operating income declined 13.2% year over year to $4.65 billion.

Cash Flow & Liquidity

As of Jun 30, 2020, cash and cash equivalents were $13.94 billion, up from $8.52 billion as of Mar 31, 2020.

Moreover, as of Jun 30, 2020, consolidated total debt was $104.81 billion, up from $103.58 billion as of Mar 31, 2020.

In second-quarter 2020, Comcast generated cash from operations of $8.64 billion, up 22.8% year over year.

Capital expenditures were down 8.3% to $2.08 billion. NBCUniversal’s capital expenditures decreased 20.9% to $375 million. Moreover, Cable Communications’ capital expenditures decreased 8.9% to $1.5 billion. However, Sky reported capital expenditures of $215 million, up 22.1%.

Free cash flow was $5.97 billion in the reported quarter, up 40.5% year over year.

Dividends paid out in the second quarter were worth $1.1 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Comcast has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Comcast has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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