Comcast Stock Slips on Ad Revenue Slump, Broadband Subscriber Losses Despite Q3 Earnings Beat

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Peacock added 4 million paying subscribers during the quarter for a total of 28 million

Comcast Earnings
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Shares of Comcast slipped as much as 8% in pre-market trading on Thursday despite beating Wall Street expectations for its third quarter of 2023.

The NBCUniversal parent reported adjusted net income of $4.48 billion, or earnings of $1.08 per share, up 6.2% and 12.5% year over year, respectively. Total revenue grew 0.9% year over year to $30.1 billion, while analysts surveyed by Zacks Investment Research were expecting earnings of 94 cents per share on revenue of $29.64 billion.

Peacock, which added 4 million paid subscribers during the quarter, posted revenue of $830 million, up 64% year over year compared to $506 million a year ago. Meanwhile, the streamer’s adjusted EBITDA loss narrowed to $565 million, compared to $614 million a year ago. The company expects Peacock to hit peak losses of $2.8 billion in 2023, down from previous guidance of peak losses of $3 billion, and “meaningful EBITDA improvement” for the streamer in 2024.

But revenue in the Studios segment dropped 25% year over year thanks to a dismal film output (“Oppenheimer” aside) and the Hollywood strikes. The media conglomerate also shed 18,000 domestic broadband customers and domestic advertising revenue fell 8% year over year.

During the earnings call, Comcast president Mike Cavanagh said the ad revenue decline was “not a big difference in story” than the previous quarter, calling the ad market “soft.”

“It hasn’t necessarily gotten worse, despite a little bit of sequential decline, but it hasn’t gotten better at the same time. And we still continue to think it’s due to the general uncertainty about economic conditions that are out there,” he added.

In Comcast’s Connectivity & Platforms segment, its cable business, adjusted EBITDA grew 3% to $8.2 billion and revenue grew 1.1% year over year to $20.2 billion. Residential connectivity and platforms revenue grew 0.7% year over year to $17.95 billion, while business services connectivity revenue grew 4.7% year over year to $2.32 billion. Total customer relationships for the cable business increased by 40,000 to 52.3 million, while total domestic broadband customers fell by 18,000 to 32.3 million and total domestic video customers fell by 490,000 to 14.5 million. Meanwhile, total domestic wireless lines increased by 294,000 to 6.28 million.

In its Content & Experiences segment, which includes media, studios and theme parks, adjusted EBITDA grew 10.2% to $1.97 billion, driven by theme parks and moderating Peacock losses, and revenue grew 0.8% year over year to $10.6 billion. Adjusted EBITDA in the Media division grew 6.5% year over year to $723 million, while revenue grew 0.4% year over year to $6.03 billion. However, domestic advertising revenue fell 8.4% year over year to 1.91 billion, domestic distribution revenue grew 3.8% year over year to $2.59 billion and international networks revenue grew 16.9% to $1.02 billion.

In its Theme Parks segment, a highlight for the company, adjusted EBITDA grew 20% year over year to $983 million, its highest on record, while revenue climbed 17.2% year over year to $2.4 billion. Revenue growth was driven by higher revenue at its international theme parks, which had COVID-19 related restrictions in the prior year period, and higher revenue at its domestic theme parks, including Universal Studios Hollywood due to the continued success of Super Nintendo World, partially offset by lower revenue at its Orlando theme park which continued to be above comparable pre-pandemic 2019 levels.

In its Studios segment, adjusted EBITDA fell 22.2% year over year to $429 million, while revenue slid 23.6% year over year to $2.5 billion. Theatrical revenue fell 25.1% year over year to $504 million, primarily due to higher revenue from theatrical releases in the prior year period, including “Minions: The Rise of Gru” and “Jurassic World: Dominion,” partially offset by the successful performance of “Oppenheimer,” which grossed more than $900 million in worldwide box office during the third quarter. But aside from Nolan’s acclaimed epic, Universal’s film output was dismal this quarter with the lackluster horror play “Last Voyage of the Demeter” and the comedy “Strays.”

Content licensing revenue dropped 25% year over year to $1.69 billion, primarily due to the timing of when content was made available by the company’s television studios, including the impacts of the Writers Guild and Screen Actors Guild strikes.

The latest quarterly results come after the WGA ratified its new contract agreement with the Alliance of Motion Picture and Television Producers and ended a 148-day strike. Meanwhile, the AMPTP has returned to the negotiating table with SAG-AFTRA, which has been on strike since July 14.

Comcast generated free cash flow of $4.03 billion, up 19.1% from $3.39 billion a year ago, and net cash of $8.2 billion, up 17.4% year over year from $6.95 billion, during the quarter.

“Working capital was fairly neutral in the quarter and improved by nearly a billion dollars a year over year, with more than half of this improvement reflecting the pause in production during the work stoppages associated with the writers and actors strikes,” chief financial officer Jason Armstrong said. “We expect this benefit in working capital to reverse as we ramp up to our normal levels of production in the coming quarters.”

Armstrong also tempered expectations for the fourth quarter, with overall media EBITDA results expected to be impacted by higher sports costs, reflecting a full quarter of the contractual rate increase in NFL programming, the addition of Big 10 to its sports programming lineup and higher premier league costs compared to last year when games were paused for four weeks to accommodate the timing of the World Cup. Meanwhile, broadband subscriber losses are expected to be “somewhat higher” in the fourth quarter.

In addition to the quarterly results, the media giant’s board of directors declared a quarterly dividend of 29 cents per share on the company’s common stock, which will be payable on Jan. 24, 2024, to shareholders of record as of the close of business on Jan. 3. Comcast returned $4.7 billion to shareholders during the third quarter, through a combination of $1.2 billion in dividend payments and $3.5 billion in share repurchases.


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