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Comcast Pursues Roll-Up Strategy

Posted on Wednesday, Aug 27th 2008

Comcast (CMCSA) has been managing to beat the economic downturn. Its quarterly performance and the rising stock price are indicative of the company’s execution strength.

Q2 revenues of $8.6 billion were in line with the market’s expectations and increased 11% over the year. Sequentially, revenues grew by a marginal 2%. EPS of $0.21 missed the Street’s estimates by a cent while increasing 11% over both the year and the quarter.

By segment, for the quarter, cable revenues grew by 7.2% to $8.1 billion and programming revenues increased 10% to $0.37 billion. Advertising revenues were down for cable players across the board, in Comcast’s case by 2%. Video revenues grew 3%, high-speed Internet revenues 10%, and phone revenues 50%. Comcast reaffirmed previous guidance of revenue and earnings growth of 8-10% for the year. During the quarter, they repurchased another tranche of 2% of their shares at $1 billion.

Comcast had earlier slowed down on making acquisitions. Of late, they have been back on a buying spree. During the quarter they acquired Plaxo for $150 million, with the logic of creating a unified communications data backup business. This month they announced the acquisition of DailyCandy for $125 million. DailyCandy is an online newsletter addressing women via e-mail newsletters on fashion, fitness, culture, and lifestyle. This might be a small step to their filling the gap in the lifestyle vertical.

Additionally, they are investing in technology. They are going to implement DOCSIS 3.0 which will allow them to devote multiple analog channels to their high-speed data business instead of the present one channel; the new technology has the capability to offer speeds of 50-100 meg compared with the present 6-8 meg. Comcast is working on improving customer satisfaction and claim to have seen visible results through their investments.

Comcast stock rose 4.6% to $20.07 on the announcement of the results. It is currently trading at $21.09. I believe it is a good stock to hold, especially if they use their currency to do a comprehensive acquisition strategy. Comcast could then go beyond its cable company roots, and become a full-fledged interactive media conglomerate. Given current market conditions, there is much, much to buy at attractive prices. Comcast should take advantage of this environment, while Yahoo! and Microsoft are distracted.

1yr CMCSA

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