Comcast Corporation (NASDAQ:CMCSA) Q1 2024 Earnings Call Transcript April 25, 2024

Comcast Corporation beats earnings expectations. Reported EPS is $1.04, expectations were $0.99. Comcast Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning ladies and gentlemen, and welcome to Comcast’s first quarter earnings conference call. At this time, all participants are in a listen-only mode. Please note this conference call is being recorded. I’ll now turn the call over to Executive Vice President, Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker.

Marci Ryvicker: Thank you Operator, and welcome everyone. Joining us on today’s call are Brian Roberts, Mike Cavanagh, Jason Armstrong and Dave Watson. I will now refer you to Slide 2 of the presentation accompanying this call, which can also be found on our Investor Relations website and which contains our Safe Harbor disclaimer. This conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP. With that, I’ll turn the call over to Mike.

Mike Cavanagh: Thanks Marci, and good morning everyone. Across the company, our team is managing extremely well in a highly competitive and evolving marketplace. We have a clear vision for how we are going to compete now and into the future, combined with a sharp focus on execution. Equally important, our disciplined capital allocation strategy coupled with our strong balance sheet puts us in an enviable position relative to our peers to invest organically and aggressively in our six scaled and diverse growth businesses, namely residential broadband, wireless, business services, theme parks, studios, and streaming. These businesses comprise more than 55% of the company’s total revenue today, and that proportion will only grow over time.

In the first quarter, these businesses generated a high single-digit increase in revenue on a trailing 12-month basis, and when combined with our substantial share repurchase activity enabled us to deliver double-digit adjusted EPS growth as well as significant growth in free cash flow per share. In fact, since 2018, we grew adjusted EPS over 50% and free cash flow per share nearly 25%. Now for some of the highlights of the first quarter, I’ll start with broadband. The broadband market remains extremely competitive, particularly within the market for more price-conscious consumers. We continue to be intensely focused on segmentation, providing customers with options that meet both their lifestyle and budget. Importantly, we are striking the right balance between ARPU and subscribers, which is clearly reflected in our first quarter results where, despite modest subscriber losses, ARPU grew over 4%, driving mid-single digit growth in residential broadband revenue to over $6.5 billion.

We continue to see extremely encouraging broadband consumption trends across our base of 32 million customers. Usage on our network rose double digits year-over-year with broadband-only households consuming over 700 gigabytes of data each month, and our broadband customers continue to value faster speeds. Today, over 70% of our residential subscribers received speeds of 500 megabits per second or higher, and around one-third are getting a gig or more. We believe that consumers’ expectations for their broadband experience in terms of speed, reliability, security and performance will only increase over time. It is extremely important to us that our network upgrades stay well ahead of this demand. Our deployment of mid splits doubled year-over-year and now reach 40% of the footprint.

The investments we are making to increase capacity and incorporate multi-gigabit symmetrical speeds everywhere we offer service put us in a great position to capitalize on these very favorable consumer trends, and when combined with our rapid footprint expansion set us up to gain market share and return to broadband subscriber growth over time. Turning to wireless, we increased our domestic customer lines by 21% year-over-year to nearly 7 million, yet with wireless penetration of our residential broadband customer base still only 11%, we have plenty of room to grow. We continue to see the benefit of bundling broadband and mobile, which decreases churn and improves customer lifetime value. Our customers also benefit by being connected to our Wi-Fi network, which is the largest in the nation.

In fact, 90% of all Xfiniti mobile traffic is delivered over Wi-Fi, not cellular, and we are constantly adding new features to further differentiate the experience. The most recent example is our introduction of Wi-Fi Boost, which enables any Xfiniti mobile customer to experience speeds of up to a gig whenever they connect to our 23 million hotspots at no additional cost. Across our connectivity and platforms business, we’re focused on profitably serving each segment of the market, from our premium and traditional customers who want fully features products to more price-driven consumers. With regard the latter, we are introducing Now, a new brand and product portfolio targeting the prepaid market that delivers high quality, low cost internet, mobile and streaming TV products with simple all-in pricing.

Now internet and mobile will be particularly helpful to those Americans impacted by the end of ACP, bringing them another option for affordable, reliable connectivity and supplementing our Internet Essentials program, which we offer to eligible households as part of our longstanding commitment to help close the digital divide in America. Turning to content and experiences, let’s start with parks. We continued to see strong underlying demand in both Hollywood and Japan, where healthy attendance and per-cap levels were once again driven by the success of Super Nintendo World. Building on our momentum, later this year we’re opening our newest Nintendo-themed land, Donkey Kong Country, which will increase the size of Super Nintendo World in Japan by 70%.

Switching gears to Orlando, we started to feel some pressure on attendance levels late in the first quarter, which tends to occur in tandem with the ebbs and flows of new attractions in the market. Right now, we happen to be lapping the multi-year surge in attendance from our opening of new attractions in prior periods, but we remain confident about our longer term growth opportunities, especially as we look ahead to next year with the opening of Epic Universe. With three new hotels and five immersive worlds featuring more than 50 attractions, entertainment, dining and shopping experiences, it will be the most technologically advanced park in the world. Together with our three current gates in Orlando, Epic will enable us to offer a full week’s vacation experience to even more guests.

Moving to studios, we’re incredibly proud of our film team and our recent ranking as the number one global studio by worldwide box office and winner of eight Academy Awards, including Best Picture for Christopher Nolan’s Oppenheimer. On the back of our fantastic performance in 2023, the power of our studios continued this quarter with the theatrical release of Kung Fu Panda 4, which has grossed over $480 million in worldwide box office to date, and we have an exciting slate still ahead. For the third year in a row, we’ll release more movies than any other major studio with the Fall Guy, an action thriller starring Ryan Gosling and Emily Blunt coming this May, Despicable Me 4, Illumination’s newest installment of this highest grossing animated franchise, as well as our adaptation of Twisters, both debuting in July, and Wicked, one of the most highly anticipated movies of 2024 coming in November.

Finally in media, we are successfully managing the segment as one business across linear and streaming. By providing the tens of millions of traditional paid TV subscribers as well as streamers with choice in how they engage with us, we continue to generate significant audience for our programming: big events like the Olympics, Sunday Night Football, Big 10, top entertainment shows like Saturday Night Live and Law and Order. With strong consumer demand for our content, we’re well positioned to evolve with the changing market. Our exclusively streamed NFL wildcard game was a big success this past quarter. We added and then retained even more new Peacock subscribers than we expected. Overall, people are staying with us to engage in a broad range of content, spending 90% of their time on the platform viewing non-sports programming.

This includes scripted shows like Ted and reality shows like The Traders, both of which ranked within Nielsen’s streaming top 10, and our award-winning collection of films like Oppenheimer, which premiered exclusively on Peacock in February and was the most watched film across all streaming in its first seven days on the platform. Clearly Peacock has been on a great trajectory since our launch four years ago. We’re at 34 million paid subscribers, having grown 12 million year-over-year and at a $10 ARPU. Looking ahead, our content offering provides such a great value proposition that we should have some real pricing power over time. Of course, sports also play an important role in our media business, and that’s especially true this year.

Following the Kentucky Derby in May, we’ll have the Paris Olympics for 17 nights this summer. With more programming hours on the NBC broadcast network than any previous Olympics and over 5,000 hours of live coverage on Peacock, the Games are on track to generate the most advertising revenue in history with $1.2 billion in ad sales commitments. Right after the Olympics, we have the return of football with Big 10, Sunday Night Football, and the NFL’s first-ever Friday night opening game from Sao Paulo streaming exclusively on Peacock. Wrapping up, I am really proud of the work that our teams across the company are doing. Together, we’re executing at the highest level and positioning ourselves for growth in a challenging and dynamic marketplace.

Jason, over to you.

Jason Armstrong: Thanks Mike, and good morning everyone. I’ll start with our consolidated results on Slide 4. Total revenue increased 1% to $30.1 billion, and within this our six major growth drivers generated nearly $17 billion in revenue, well over half of total company revenue, and once again have shown steady and consistent growth at a high single-digit rate over the past 12 months. While EBITDA was in line with prior year’s level at $9.4 billion, we generated a high level of free cash flow this quarter at $4.5 billion and we returned $3.6 billion of capital to shareholders, including $2.4 billion in share repurchases, and over the last 12 months we have reduced our share count by nearly 6%, contributing to our adjusted EPS growth in the quarter of 14%.

Now let’s go through our business results, starting on Slide 5 with connectivity and platforms. Note that our largest foreign exchange exposure is to the British pound, which was up 4% year-over-year, so as usual, in order to highlight the underlying performance of the connectivity and platforms business, I will refer to year-over-year growth on a constant currency basis. Revenue for total connectivity in platforms was flat at $20.3 billion, reflecting strong growth in connectivity revenues offset mainly by declines in video revenue. Residential connectivity revenue grew 7% driven by 4% growth in domestic broadband, 13% growth in domestic wireless and 19% growth in international connectivity, while business services connectivity revenue grew 5%.

In domestic broadband, our revenue growth was driven by very strong ARPU, which increased 4.2% and came in a bit above our historical range. Our team is doing an excellent job of customer segmentation while balancing rate and volume, and we are encouraged by the positive consumer behavior trends we see in our base of 32 million customers. Bandwidth requirements and engagement are increasing at a rapid clip, while the vast majority of our customers are now on speeds of 500 megabits or higher and adopting advanced tiers of service, like xFi Complete, at a higher rate. But as Mike mentioned, it continues to be a very competitive environment, and we lost 65,000 subscribers in the first quarter following a loss of 34,000 subscribers in the fourth quarter of 2023.

As we sit here right now, we do not see this trend improving in the near term. We expect churn could be elevated given the end of ACP, which is only fully funded through April and partially funded through May. We remain in constant communication with our ACP customers and we’ll continue to be diligent in helping this customer segment stay connected through various options, whether that’s our successful Internet Essentials program or our new prepaid Now offerings, as Mike described. In addition, I want to remind you that the second quarter also tends to experience seasonal headwinds. While it’s a competitive market, especially for the price-driven segment, we will continue to compete aggressively, yet in a financially balanced way, and expect to drive healthy broadband revenue growth through growth in ARPU, which we expect to remain well within our historical range of 3% to 4% growth even as we manage through the ACP transition.

Turning to domestic wireless, revenue growth of 13% was due to higher service revenue driven by a 21% year-over-year increase in our customer lines, ending the quarter at 6.9 million in total including the 289,000 lines we just added in the quarter. We are consistently in the marketplace testing new offers, including some recent new pricing plans targeted at multi-line customers, the new Now mobile product, as well as our Buy One, Get One line offer. We continue to see significant opportunity in wireless to increase the penetration of our domestic residential broadband customer base, which currently sits at 11%, and to sell additional lines per account. International connectivity revenue reflects strong growth in broadband revenue driven by solid ARPU growth, as well growth in wireless due to additional customer lines and also higher ARPU.

For business services connectivity, we generated 5% revenue growth driven by higher ARPU in small business and broader growth in both customers and additional solutions for midmarket and enterprise. The SMB market has gotten more competitive, but we’ll aggressively defend our position and, similar to this quarter, we’ll grow revenue by increasing ARPU driven by higher adoption of additional products, like mobile, Security Edge, Connection Pro and Wi-Fi Pro, and through targeted rate opportunities. Meanwhile, our momentum continues to build in mid-market and enterprise as our expanding capabilities in managed services, wide area networking and cyber security have led to increasing customer wins and the expansion of existing relationships.

The strong growth in our connectivity businesses was offset by a decline in video and other revenue. The decline in our video revenue was driven by continued customer losses and slower domestic ARPU growth versus last year, and the lower other revenue reflects continued customer losses in wire line voice. As I mentioned earlier, connectivity and platforms total EBITDA increased 1.3% with margin of 50 basis points, reflecting a decline in overall expenses driven by the mix shift to our high margin connectivity businesses combined with a continued focus on expense management. While margins for our domestic legacy cable business improved even more, our international business was impacted by a reclassification of some expense from capitalized software to operating expenses, creating a tough comparison to last year.

We will see a similar trend until we start to lap this change at the end of this year. I’ll note that absent this change, EBITDA growth in the first quarter would have been about a point higher, and our margin improvement would have been about 50 basis points higher. While this change increased our operating expenses this quarter, there was an offsetting decline in connectivity and platforms capital, resulting in a neutral impact on net cash flow, which was up 5% this quarter. Breaking our connectivity and platforms EBITDA results further, residential EBITDA grew 1.1% with margins improving 60 basis points to 38.3%, and business services EBITDA growth was lower than our typical mid-single digit level at 2.6%, with margins declining 160 basis points to 56.7%.

These results include significant investments in the enterprise space, including in sales and fulfillment, that we are making to drive future revenue growth. Business services generates well over $5 billion in annual EBITDA which is margin accretive, and we expect it to continue to be a material contributor to overall connectivity and platforms growth this year and over the longer term. Now let’s turn to content and experiences on Slide 6. Overall, revenue increased 1% to $10.4 billion, and EBITDA decreased 7% to $1.5 billion. Let’s take a closer look at the details. Starting with theme parks, revenue increased 2% while EBITDA decreased 4% for the quarter. These results reflect the negative impact of currency as the Japanese yen is at a 34-year low against the dollar.

Adjusting the results to exclude the impact of foreign currency, parks revenue would have increased 5% and EBITDA would have been flat compared to last year’s first quarter. We had strong underlying growth at our park in Osaka, which continues to benefit from demand for Super Nintendo World. We’re also seeing growth in Hollywood despite lapping the opening of Super Nintendo World in that park during the quarter. Beijing results were relatively flat in what is typically a seasonally light quarter, and Orlando results were below last year but still roughly in line with pre-pandemic levels. We are seeing some pullback from the unprecedented attendance we realized immediately after the pandemic, which we believe is driven by the timing of new attraction openings and some increased competition from other entertainment venues, notably cruises.

At media, which includes our TV networks and Peacock, revenue increased 4% as Peacock’s strong growth of 54% more than offset a low single-digit decline at our linear networks. Distribution revenue growth of 7% was driven by Peacock with subscription revenue growth of 68%, powered by the 55% year-over-year increase in our paid subscriber base to 34 million, including 3 million net adds in the first quarter. We are really pleased with Peacock’s trajectory. We started the year with an incredibly successful NFL wildcard game which resulted in a nice lift to paid subs, but even more important was how our broad content offering enabled strong consumer acquisition, retention and engagement. We’ve had success across a broad range of content during the quarter, including films moving into our pay-one window, like Oppenheimer, the most watched pay-one film in Peacock’s history, and the Holdovers, as well as successful originals including Apples Never Fall, Ted, and the second season of The Traders.

Looking ahead, we’ll continue to be focused on retention, particularly in the second quarter as we look forward to the second half of the year, where we have a substantial amount of acquisition-oriented content lined up. This is consistent with Peacock’s historical trends and this year is expected to be driven by the Olympics this summer and the NFL and Big 10 returning in the fall, in addition to the steady stream of films landing on our pay-one window as well as upcoming originals. Finally, domestic advertising revenue was flat in the quarter, reflecting a stable overall market with strong advertising growth at Peacock, offset by lower advertising revenue at our linear networks. Media EBITDA decreased 6%, reflecting the revenue pressure on our linear networks partially offset by continued year-over-year improvement in Peacock EBITDA losses, even with the addition of the wildcard rights costs, and we expect to see on average even better year-over-year improvement for Peacock in the coming quarters.

At studios, the revenue decline of 7% reflects lower content licensing, which was impacted by the timing of deliverables related to our film licensing business, which was partially offset by a modest increase in theatrical revenue driven by the strong performance of Kung Fu Panda 4 at the box office this quarter. Studios EBITDA declined 12%, reflecting the difficult comparison to last year’s film slate, including the highly successful carryover title, Puss in Boots: The Last Wish, and the timing of licensing deals at film. Now I’ll wrap up with free cash flow and capital allocation on Slide 7. As I mentioned previously, we generated $4.5 billion in free cash flow this quarter, and we achieved this even with the significant investments we continue to make to support our growth drivers.

Specifically, our $3.3 billion in total capital spending this quarter incorporates our efforts in expanding our footprint and further strengthening our domestic broadband network, scaling our streaming business, and supporting the continued build of our Epic Universe theme park ahead of its 2025 opening. Working capital was a $940 million drag for the quarter, a significant improvement over last year, a lot of which was timing related. Turning to return of capital, for the quarter we returned a total of $3.6 billion to shareholders, an increase of 13% year-over-year. This includes share repurchases of $2.4 billion and dividend payments of $1.2 billion. Putting it all together, in the last 12 months we have returned over $16 billion in capital to shareholders between share repurchases and dividends, reducing our share count by nearly 6%.

At the same time, we invested nearly $17 billion back into our businesses in the form of capital and working capital, carefully and consistently balancing reinvesting in our businesses for growth, returning significant capital to shareholders, and doing so with a very strong balance sheet which facilitates this consistency through a variety of operating environments. Now let me turn it over to Marci for Q&A.

Marci Ryvicker: Thanks Jason. Operator, let’s open up the call for Q&A, please.

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