Comcast Earnings Preview: What We're Watching

| About: Comcast Corporation (CMCSA)

Comcast (NASDAQ:CMCSA) will report its Q4 2012 earnings on Feb. 13, and we expect pay-TV subscriber additions to remain roughly flat compared to the fourth quarter of 2011. The broadband business will benefit from continued strong demand and Comcast's efforts to build Wi-Fi hotspots nationwide. In addition to this, we expect NBCUniversal to perform well, driven by improved ratings in the new season and a better economy that's driving consumers to theme parks. However, on sequential basis, there will be a decline as the third quarter had benefited disproportionately from the summer Olympics broadcast. Advertising business may also get some boost from improved subscriber trends and political ad spending.

Pay-TV Business -- What to Expect?

Comcast lost close to 17,000 net pay-TV subscribers in Q4 2011. That was a huge improvement over prior figures, but the company's losses have increased since then. Last quarter it lost close to 117,000 net subscribers in its pay-TV business. Given that Q4 tends to be seasonally strong, we expect that Comcast may be able to match last year's figure. According to research firm Jefferies & Co., Comcast will report an improvement in net pay-TV subscriber losses over the fourth quarter of 2011. In any case, we expect that situation wouldn't be worse. The company has been making efforts to improve customer service and push its on-demand and streaming content.

A quick review of Comcast's history reveals that its cumulative on-demand views increased from 11 billion in 2009 to 20 billion in 2011. While the company continues to enrich its on-demand content, its subscription streaming service Xfinity Streampix is also helping in subscriber trend improvement.

NBCUniversal Will Benefit From Improved Ratings and Economy

We estimate that NBCUniversal business constitutes more than 15% of Comcast's value. Most of this segment's profits come from its cable networks. However, fourth-quarter results will benefit from improved ad pricing, better performance of NBC broadcasting, as well as improvement in general economy that has led to increased theme park attendance as well as per capita spending.

Three weeks after the start of its 2012-13 broadcasting season, NBC was up 15% in ratings compared to the same period last year, while the other broadcasting networks were down by 12% to 24%. Comcast reported in January that NBC has been the No. 1 broadcasting network among the 18-49 demographic for 13 out of 15 weeks of the new season. This speaks to the company's efforts of re-working its programming to revive the network. NBC Broadcasting Network was a weak spot in the media arsenal of NBCUniversal when Comcast acquired it last year. Due to relatively weaker programming, the network was consistently falling behind its competitors such as CBS (NYSE:CBS), Fox, and ABC. However, this has changed in the new season.

As far as the broadband business is concerned, there is no doubt that Comcast will continue to demonstrate healthy subscriber additions and revenue growth. This business is increasingly becoming critical for Comcast and other cable companies. We estimate that almost 25% of Comcast's value can be attributed to broadband.

Our price estimate for Comcast stands $41, implying a premium of more than 5% to the market price.

Disclosure: No positions.