Comcast Cool in Rough Times

Comcast (NASDAQ:CMCSA) repeated their previous quarter’s outperformance, an achievement in this difficult quarter. Q4 revenues of $8.77 billion were better than the market’s expectations of $8.64 billion and recorded growth of 9% annually. EPS of $0.27 was significantly higher than the market’s expectations of $0.22 and grew 35% over the year. Bravo!

Video revenues grew 3.5% to $4.74 billion while broadband Internet services revenues rose 9% to $1.86 billion. The digital phone segment saw significant growth of 45% to $0.73 billion. Like the rest of the industry players, Comcast saw a dip in advertising revenues, which fell 5% to $0.41 billion despite a 20% increase in political spending in the quarter.

Among key metrics, the company lost 233,000 video subscribers, taking their total subscriber base to 24.2 million, a 2% decrease over the year. However, the increase in higher-paying digital customers by 247,000 helped grow the average revenue per video customer by 9% to $113.80 per month. Comcast added 184,000 Internet subscribers during the quarter, taking them to an overall 14.9 million broadband customers.

Comcast ended the year with revenues of $34.3 billion, recording growth of 11% over the year. EPS of $0.91 grew 23% over the year. During the year, they repurchased 141 million shares worth $2.8 billion.

The company is worried about the economy but is still optimistic about their performance and increased the dividend payout for the year by 8%. They expect strong growth in business services to continue in the next year.

Last quarter they began implementing cost control measures and are expecting to save around $260 million in the coming year through those steps. They have already reduced their headcount by 3,300 employees.

They have made successful changes to their product offerings and operating strategy: they are offering new HD Triple Play packages (TV, Internet and phone) that include higher speed Internet and more HD on demand and are able to provide a broad range of products that help address the needs of HD and fast speeds on the Internet.

Their customer experience had been terrible. But they have made significant improvements in some key parameters such as network reliability, which is now above 90%; contact rates by customers, which decreased 4.4%; and repeat trouble calls, which are lower by 6.5%.

Comcast is taking active measures in going fully digital, improving on their execution strategy. They have already deployed wideband to almost 30% of their market space and are offering new features such as Caller ID to the television set. They have upgraded more than 90% of their high-speed Internet customers.

When the rest of the market is cutting investments, Comcast plans to increase their capital layout on  DOCSIS 3.0, bandwidth reclamation, All-Digital and the digital transition in 2009 and expect to invest $0.4-$0.5 billion in these initiatves in 2009. As part of these initiatives, they expect to free up capacity for HD, ethnic services and DOCSIS 3.0.

They are pleased that despite the current downturn, they are not seeing increased disconnects or downgrades and were also not troubled by additional bad debts.

The stock is currently trading at $13.88, not too far from the 5-year low of $12.50 it reached earlier last year. In steadier times, I would say this is a Strong Buy. These days, though, I can’t tell what Obama and Geithner are planning to do with our money!