How Will A Slowing Broadband Business Impact Comcast’s Q2 Results?

Comcast (NASDAQ:CMCSA)  is expected to report its Q2 2024 results in the coming weeks. We expect Comcast’s earnings to come in at $1.15 per share, marginally ahead of consensus estimates of $1.12 per share. We project that revenue will stand at about $30.10 billion, roughly in line with consensus estimates and roughly flat versus last year. So what are some of the key trends that are likely to drive the company’s earnings? See our interactive dashboard analysis on Comcast Earnings Preview for more details on how Comcast’s revenues and earnings are likely to trend for the quarter.

Amid the current financial backdrop, CMCSA stock has suffered a sharp decline of 30% from levels of $50 in early January 2021 to around $35 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the decrease in CMCSA stock has been far from consistent. Returns for the stock were -4% in 2021, -31% in 2022, and 25% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CMCSA underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the mega-cap stars TSLA, MSFT, and AMZN.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CMCSA face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

Comcast’s bread-and-butter broadband Internet business has seen a lackluster performance in recent quarters. Over Q1 2024, Comcast lost about 65,000 broadband customers.  The slowdown comes as the boom witnessed through the Covid-19 pandemic and the remote working and learning trend has eased with the housing market also slowing down.  Moreover, competition has been mounting from fixed wireless broadband players, who offer more flexibility and affordable rates. However, Comcast has been able to raise average pricing and this has helped overall revenue growth for the broadband business. These trends should continue to play out in Q2 as well.

Comcast’s cable TV business is also faring poorly, as the secular trend of cord-cutting continues. Over the last quarter, the company lost 487,000 video subscribers with customers increasingly opting for streaming services. The company’s fledgling wireless services operations – which operate on the Verizon network and use the Xfinity brand name – are likely to remain a bright spot for the company. Over Q1, the division saw wireless subscriber numbers rise 21% year-over-year to 6.9 million. The company’s content & experiences segment could have a relatively mixed quarter as the theme parks business – which was a key driver post the pandemic – sees growth potentially cool off.  Moreover, the business has been witnessing higher marketing and promotion spending and this could also weigh on profitability.

At the current market price of roughly $38 per share, Comcast trades at under 9x consensus 2024 earnings. Although there remain near-term headwinds for the stock, Comcast has the potential to expand its earnings per share driven by share repurchases and margin expansion for the cable communication business via cost and efficiency improvements. We value Comcast stock at about $43 per share, about 14% ahead of the market price. See our analysis of Comcast Valuation for a closer look at what’s driving our price estimate for the company and how Comcast compares with its peers. Also, see our analysis of Comcast Revenue for more details on the company’s key revenue streams and how they have been trending.

[1] Returns as of 7/9/2024
[2] Cumulative total returns since the end of 2016

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