Key highlights from Comcast Corporation (CMCSA) Q2 2023 Earnings Concall
Management Update:
- [00:08:41] The company is facing some challenges, such as cord cutting and new competitors, but it is confident in its ability to emerge as a long-term winner.
- [00:10:14] CMCSA said that its connectivity businesses, including residential broadband, wireless, and business services connectivity were the main drivers of growth.
- [00:17:56] CMCSA’s Peacock paid subscribers landed at 24 million, up from 13 million a year ago and the company is bullish on further increasing its Peacock subscriber base through the balance of 2023.
- [00:20:21] The company generated $3.4 billion in free cash flow in 2Q, while absorbing meaningful investments in its network and theme parks.
Q&A Highlights:
- [00:23:08] Ben Swinburne at Morgan Stanley asked about the impact of strikes on CMCSA’s free cash flow and Peacock’s profitability, growth, and loss reduction, mainly if the strikes last longer than expected. Mike Kavanaugh President answered that the strikes could have a negative impact on CMCSA’s free cash flow and Peacock’s content slate in 2024 and beyond. However, the company is confident in Peacock’s growth prospects for 2H23.
- [00:22:53] Ben Swinburne at Morgan Stanley asked how confident is CMCSA that its converged offers, network investments, and other initiatives will help it return to consistent broadband customer growth. Dave Watson replied that CMCSA’s broadband business is facing challenges from increased competition and lower move activity. However, the company is confident that it will return to subscriber growth over time. Comcast is focusing on increasing ARPU by offering higher-speed plans and bundling with other services.
- [00:31:28] Craig Moffitt with Moffitt & Nathanson enquired about the concerns of the durability of CMCSA’s wireless business and the permanence of its contract with Verizon. Dave Watson replied that CMCSA is confident in its wireless MVNO business and its relationship with Verizon. The company has perpetual access to Verizon’s network, which is a key benefit.
- [00:31:48] Craig Moffitt with Moffitt & Nathanson also asked about the impact of handset subsidies on customer lifetime value and expected churn in CMCSA’s wireless business. Dave Watson answered that CMCSA uses a variety of promotions to attract new customers to its wireless business, including gift cards, discounts, and free devices. The company focuses on higher-end mobile tiers and offers savings of up to 50% vs. telephone companies.
- [00:34:58] Brett Feldman at Goldman Sachs asked if there is an opportunity for consolidation in the sports streaming market as more businesses transition to a direct-to-consumer model. Mike Kavanaugh President said CMCSA is not interested in swapping businesses with Disney, as it would be too difficult to structure such a deal. The company is confident in its own sports portfolio and believes that it can continue to grow its sports business through Peacock.
- [00:37:59] Phil Cusick at J.P. Morgan asked to explain the strong performance of the Hollywood theme park and the weaker performance of the Orlando theme park. Jason Armstrong CFO answered that CMCSA’s theme park business is doing well, with record performance in Hollywood and strong performance in Japan and Beijing, while Orlando is recovering but still down due to currency and travel factors.
- [00:41:08] Jessica Reif Ehrlich at BofA asked if the recent restructuring in the content area and the current strike has led to any changes in NBCU’s approach to content production, costs, and strategy. Mike Kavanaugh President said CMCSA is pleased with the elevation of partners at NBC, including Donna Langley and Palenik Bakwe, who will collaborate with Mark Lazarus and Cesar Conde to create great content for platforms, while being responsive to industry needs and working with talent and creators in Hollywood.
- [00:44:45] Stephen Cahill from Wells Fargo enquired about the factors that contributed to the 4.5% increase in broadband ARPU. Jason Armstrong CFO said CMCSA’s broadband ARPU growth was driven by a number of factors, including price increases, customers up-tiering to faster speeds, and the loss of bundle discounts when customers go to HSD only.
- [00:45:13] Stephen Cahill from Wells Fargo also asked about more details on the margin contribution of international revenue and how it is expected to grow in the future. Mike Kavanaugh President said CMCSA’s international connectivity revenue grew 26% in 2Q, driven by strong growth in broadband. The company expects revenue growth to continue in the future, but margins will be impacted by the mobile business.
- [00:49:32] John Hodulik with UBS asked about more details on the outlook for margin expansion in the cable business, given the challenges of more broadband and less video, and more wireless. Jason Armstrong CFO replied that CMCSA’s connectivity business has a track record of margin expansion. The company expects to continue to grow margins in the future due to a mix shift towards accretive categories and cost savings.
- [00:49:50] John Hodulik at UBS also asked for an update on Peacock’s financial performance and the company’s path to profitability beyond 2023. Jason Armstrong CFO said that CMCSA is still projecting $3 billion in losses for Peacock in 2023. The company is confident that the service will eventually be profitable, but it will take time.
- [00:53:57] Jonathan Chaplin from New Street asked for more details on the factors that contributed to the shift in broadband net adds from 1Q to 2Q, and how wireless is impacting broadband subscriptions. Dave Watson said that CMCSA’s broadband base is stable, but net adds were lower than expected in 2Q due to lower overall move activity and macro issues. The company is being opportunistic with its offers and expects to continue to grow its broadband base in the future.
- [00:54:52] Jonathan Chaplin from New Street enquired whether Comcast is seeing gross margin expansion in its wireless business, as evidenced by Verizon’s wholesale revenue flattening over the past 3 quarters. Jason Armstrong CFO replied that CMCSA is happy with its wholesale wireless business with Verizon. The company has a revenue stream from customers, a wholesale deal with Verizon, and an efficient acquisition vehicle.