Web 3.0 & Comcast (Part 5)

Conclusion

Comcast is the top U.S. cable, high-speed Internet and digital voice services provider (a.k.a triple play). It has recently pushed ahead with a number of web-based and mobile video initiatives. These cutting-edge forays have allowed Comcast to enter new entertainment sectors, which are different from Comcast’s core business but are dynamic and are regarded as critical to the company’s diversification strategy.

The Company is expecting significant increase in its high speed data business with better revenue growth form its mobile segment due to continuous increase in subscriber base and decrease in the cost. The Company has recognized plenty of headroom for future growth in their basic video customer segment. The Company is expected to improve its margins due to solid revenue growth and the benefits of scale, including declining network and other costs as its scale up high-speed data business and Comcast Digital Voice.

Recently, Comcast released its third quarter results. Consolidated revenues for 3Q07 grew 21% and operating cash flows grew by 20% over the same quarter in 2006. Operating Income increased 14% to $1.4 billion in the third quarter of 2007 from $1.2 billion in 2006, reflecting strong results at Comcast Cable and the impact of cable system acquisitions. However, net profit for 3Q07 declined by 54% to $560 million from $1,217 million in 3Q06, mostly because of acquisitions a year earlier and lower RGU (Revenue Generating Unit) additions in 3Q07 over 3Q06. Comcast has been delivering double-digit growth in its revenues for the past few quarters.

The Company recorded 29th consecutive quarters of double-digit operating cash flows growth and is on target to record 11% growth in full year revenues and 13% growth in its operating cash flows in 2007. The stock, however, got beaten up after the earnings release as analysts punished the decline in RGU / new customer additions.

Comcast, however, has been making smart moves in its Internet business. Comcast has well-diversified digital assets in its portfolio and is betting big on the entertainment and lifestyle segment, where it is looking to build strong presence. It’s position in movies (built around Fandango) and television (fan based communities) is already quite strong, and can be further strengthened through acquisitions. Also, Comcast could look at building a position in Travel and Shopping, two large lifestyle oriented web verticals.

The business models associated with the interactive media business are somewhat different than the staple telecom business, and is not measured in terms of RGU addition and monetization alone. This business also need not be restricted to Comcast’s telecom customers, and can draw from the much larger web population.

This is why, it is extremely important that Comcast develops and communicates a very compelling interactive media strategy that gets it out of the pure commodity telecom and cable businesses, and into more interesting businesses that leverage the strong position the company has in cable and telecom.

Comcast has announced a $7 Billion share buy-back plan. In my opinion, Comcast’s cash resources, however, should be spent on some strategic acquisitions that builds a strong interactive media portfolio.

[Part 1] [Part 2] [Part 3] [Part 4]

This segment is part 5 in the series : Web 3.0 & Comcast
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