Comcast Faces Skepticism On Wall Street As Ad Decline Accelerates, Strike Toll Mounts And Broadband Experiences Buffering

Wall Street gave decidedly mixed reviews to Comcast’s third-quarter earnings report, even though the numbers beat analysts’ expectations on both the top and bottom lines.

Shares in the media giant fell more than 8% to close at $39.15, in part due to investor angst over a surprising decline in broadband subscribers. The total dropped 18,000 year-over-year to settle at 32.3 million, though analysts had forecast an increase of 3,600 subscribers.

The closing price is the stock’s lowest since June 6. While stocks across the media sector, including notables like Disney, Warner Bros. Discovery and Paramount Global, have been in the red thus far in 2023, Comcast’s is up 5%.

During a fairly uneventful, hour-long conference call with analysts after the release of the numbers, Comcast President Mike Cavanagh was asked about domestic advertising. Although the vital line item declined 8% compared with the year-ago quarter, a bigger drop than the 5% one in the prior quarter, Cavanagh wasn’t able to pinpoint any single cause. “The ad market has remained soft,” the exec said. “We continue to think it’s due to the general uncertainty about economic conditions that are out there. The weakness that we’re talking about is particularly on the linear side, while [streaming service] Peacock has remained really strong.”

The entertainment ad category saw a significant decline during the quarter, Cavanagh noted, a contrast with retail, pharmaceuticals and other categories where spending increased. “You had streamers spending a little less” to advertise on NBCU platforms, he said, “together with advertisers, given the [WGA and SAG-AFTRA] strikes, looking at what the [on-air] lineups were in the recent past and putting some of their money in other places. Some of that will revert, we believe, once the strikes are over.”

Craig Moffett, a veteran cable industry analyst who tracks the company as a partner at MoffettNathanson, called the earnings report “rather vexing.” In a note to clients headlined, “Can Video Be Saved?” he said the company’s ownership of both the largest U.S. cable system and content heavyweight NBCUniversal has led to curious strategic decisions.

“It has been been a constant source of puzzlement that Comcast Cable has been the most cavalier about letting video, well … die,” Moffett wrote, noting that the company’s residential video subscriber base has recently declined at a 12.6% annual rate. That accelerating decline in pay-TV, Moffett said, pressures margins at NBCU and makes the company more likely to funnel premium programming to Peacock despite a far-from-proven profit model in streaming.

Despite his misgivings, Moffett still has a “buy” rating on Comcast shares, with a 12-month price target of $52.

Laurent Yoon of Bernstein Research believes the broadband story has plenty of upside despite the near-term setback. “While the uncertainty lingers on sub growth, we believe in their operating leverage and discipline,” he wrote of the management team in a note to clients. “Net-net, we still like the broadband business as it continues to carry the weight for the firm.” Yoon rates the stock “market perform” (neutral), with a price target of $46.

Brett Feldman of Goldman Sachs, a steadfast bull on Comcast, characterized its quarterly results as “solid” and said anxiety about the company’s position is misplaced.

“While certain domestic operating metrics (broadband net adds, advertising revenues) were small misses vs. our estimates,” he wrote in a note to clients, “we view Comcast’s aggregate performance in [the third quarter] as better than expected and supportive of our outlook for capital returns to remain elevated through 2024.”