Comcast faces Wall Street skepticism as ad declines accelerate, fees rise and broadband experiences buffer

Wall Street was decidedly mixed on Comcast’s third-quarter earnings report, even though the numbers beat analysts’ expectations on both the high and low levels.

Shares of the media giant fell more than 8% to $39.15, partly on investor fears of a surprise decline in broadband subscribers. The total fell by 18,000 year-on-year to 32.3 million, although analysts had predicted a gain of 3,600 subscribers.

The closing price is the stock’s lowest since June 6. While stocks across the media sector, including big-name companies like Disney, Warner Bros. Discovery and Paramount Global, which have been in the red so far in 2023, Comcast rose 5%.

During a relatively quiet hour-long conference call with analysts following the earnings release, Comcast President Mike Cavanagh was asked about domestic advertising. Although the key component fell by 8% from the same quarter last year, a bigger drop than the 5% drop in the previous quarter, Cavanagh could not pinpoint a single cause. “The advertising market remains weak,” the director said. “We still believe this is due to general uncertainty about existing economic conditions. The weakness we are talking about is mainly on the linear side [streaming service] Peacock stayed very strong.”

Cavanagh noted that the entertainment advertising category saw a significant decline this quarter, in contrast to retail, pharmaceuticals and other categories where spending increased. “Streamers spent a little less” to advertise on NBCU platforms, he said, “along with advertisers given that.” [WGA and SAG-AFTRA] Strikes, look what they are [on-air] Lineups have been in the recent past and have invested some of their money elsewhere. We believe that some of it will return once the strikes are over.”

Craig Moffett, a veteran cable analyst who follows the company as a partner at MoffettNathanson, called the earnings report “pretty annoying.” In a note to customers titled: “Can videos be saved?” He said the company’s stake in both the largest U.S. cable network and heavyweight NBCUniversal led to strange strategic decisions.

“It has been a constant source of confusion that Comcast Cable has been the most thoughtful when it comes to making video disappear,” Moffett wrote, noting that the company’s residential video subscriber base recently grew by 12.6% annually. dropped This accelerating decline in pay TV is putting pressure on NBCU’s margins, Moffett said, and increases the likelihood that the company will shift premium programming to Peacock, even though its profit model in streaming is far from proven.

Despite his doubts, Moffett still has a Buy rating on Comcast stock with a 12-month price target of $52.

Bernstein Research’s Laurent Yoon believes there are many upsides to the broadband story despite the short-term setbacks. “While there is uncertainty about subgrowth, we believe in their operational influence and discipline,” he wrote about the management team in a letter to clients. “Net-Net, we still like the broadband sector as it still carries weight for the business.” Yoon rates the stock “market oriented” (neutral) with a price target of $46.

Goldman Sachs’ Brett Feldman, a staunch bull on Comcast, called the quarterly results “solid” and said concerns about the company’s condition were misplaced.

“While certain domestic operating metrics (broadband net adds, advertising revenue) were minor errors compared to our estimates,” he wrote in a note to clients, “we see Comcast’s overall performance in.” [the third quarter] “This is better than expected and reinforces our outlook that returns on capital will remain strong through 2024.”