Media and technology group Comcast Corp Class A (NASDAQ:CMCSA) has continued the improvement we saw in the first quarter. In fact, the second-quarter performance in terms of profits was better than in the three months January-March even though revenue is hardly budging.
Comcast is better known in the UK as the owner of broadcaster Sky, once a jewel in the crown of the Murdoch media empire. However, the group also makes films and runs theme parks around the world.
Revenue edged up only 1.6% to $30.5 billion in the three months to June, but that was much better than the 4.3% fall in the previous quarter and it did beat analysts’ expectation. With costs edging up a mere 0.6%, Comcast was able to push net income up by 27% to $4.25 billion, again a much better showing than the previous small fall.
Theme parks such as the Universal Studios outlets in Japan and Singapore and a resort in the Chinese capital Beijing are leading the improvement thanks to a surge in bookings since the easing of coronavirus restrictions. The opening of Super Nintendo World at Universal Studios in Los Angeles has provided a further boost, helping this division to make record adjusted profits.
This is a complicated business. For example, revenue at the studios business slipped 0.9% yet the stunning success of The Super Marios Bros. Movie – the second-highest animated film ever in terms of worldwide box office revenue – and the latest instalment in the Fast & Furious franchise meant that adjusted earnings in this part of the business swung from a $3 million loss to a $255 million profit.
Source: interactive investor. Past performance is not a guide to future performance.
One worry is satellite broadcaster Sky, bought for £36.6 billion in 2018 and looking less and less like a bargain. No wonder Comcast has reduced the amount of detail it gives for this business. What is clear is that subscriber numbers continue to slide. The conclusion of the Premier League season during the quarter is claimed to have led to some cancellations of subscriptions, but this can hardly have had more than a minimal effect.
Another concern is the Peacock streaming service, which is still in its early, expensive stages. Subscriber numbers have reached 24 million and revenue jumped 85% but losses also continue to grow.
Comcast also owns the NCB television network and supplies broadband connections in the US. Growth in the broadband business has slowed to the point where customers are being driven away as this arm raises its prices, putting the emphasis on increasing revenue per customer. This is a risky strategy given that the general surge in broadband subscribers during the pandemic has eased off, but so far total revenue, and profits, have continued to edge higher.
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The shares halved in the 12 months to last September, when they hit a five-year low of $30 as the impact of the Covid-19 lockdowns took its toll on results, but there has been a recovery to around $47. This level has been a ceiling in the past and could well be a sticking point again, especially as the price/earnings ratio is uncomfortably high at 29.
Strong cash generation has funded a share buyback programme and both Comcast and its Sky subsidiary are making cash tenders to redeem debt, a welcome move in these days of rising interest rates. There is also a solid dividend that gives a yield of 2.4%.
Hobson’s choice: I recommended Comcast nearly three years ago at $45 and those who followed that tip have since enjoyed dividends and have had the opportunity to take a decent profit. The current upward trajectory in the shares should continue and if they break above $48 then the former peak just over $60 could well be attainable. Buy now, and if you are a shorter-term trader consider getting out above $56.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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