By Tony Lenoir
Wednesday, February 13, 2013 5:48 PM ET
Comcast Corp. took Wall Street and the cable industry by storm Feb. 13, accelerating the final stages of its acquisition of NBCUniversal Media LLC, and announcing a dividend increase and share buybacks. The company bolstered the initiatives with strong 2012 results across the board, including free cash flow gains of 20% and its best video subscriber performance since 2007, with the smallest quarterly losses in nearly six years.
Programming expenses remained a challenge, however, growing at 2.7x the pace of video revenue.
Total cable revenues grew by 6.4% to $39.60 billion in 2012, with high-speed data again leading the other subscription-based products, up 9.2%, versus gains of 2.5% and 1.5% for video and voice, respectively. Nontraditional categories soared, with revenues from business services jumping 34.2%, and advertising, boosted by record political ad spending, growing 14.1%.
HSD was the largest contributor to revenue growth for the second straight year, accounting for 33.7% of the operator's $487 million in top-line gains. The segment contributed 41.8% to the top line in 2011. Advertising, facing relatively easy comps roughly one year out of the 2008-09 recession, was the top contributor in 2010, coming in at 48.4%, but HSD was already the top subscription-based contributor then at 16.9%.
Video bested the fast-growing, high-margin service on a per-user basis, however, with average revenue per user growing 4% from $72.49 to $75.62 in 2012. In comparison, HSD ARPU grew 2% to $42.41, four percentage points below Time Warner Cable Inc.'s HSD ARPU growth rate, which in 2012 was boosted by the company's hike in modem rental fees. Voice ARPU was down 6% to $30.72 from $32.52. Note that our ARPU calculations include both residential and commercial subs.
Overall, the surge in nonsubscription revenues, which accounted for 43.6% of net cable revenue gains in 2012, led to an 8% jump in total ARPU, from $137.50 to $148.91. This represents a rise of 17% in two years and 26% since the doldrums of 2009. Rate increases and the rapidly developing business segment are likely to keep ARPU on the mid- to upper-single-digit growth path in 2013.
Programming costs will continue to rise, however. CFO and Vice Chairman Michael Angelakis in the earnings call on Feb. 13 said the company was projecting a low double-digit increase, the bulk of which will be driven by sports, retrans and standard rate increases. The company's expanding efforts around TV Everywhere, which entail additional licensing rights, will also play a role.
Overall, video programming expenses increased by 6.8% in 2012 to $8.39 billion. This led to a 9% increase in the cost of programming each video sub, or 2.8x the rate of video ARPU growth, to $31.53 from $29.00.
Margins should not suffer, according to Angelakis. "We have appropriately planned for these program expense increases and are confident we can effectively offset these costs through modest rate adjustments, further efficiencies and improving product mix, as well as increasing the number of customers upgrading to higher tiers of service. As a result, we expect to maintain relatively stable margins."
The company did not provide any guidance on the subscriber front Feb. 13, but recent trends paint a brighter picture moving forward. Comcast continued to record impressive HSD sub gains in 2012, adding a net 1.2 million business and residential customers, including 342,000 in the 2012 fourth quarter, for a year-over-year growth rate of 6.7%. Voice subs were up 6.6%.
Basic video subs ended 2012 down 1.5%, but the company in the fourth quarter recorded its ninth straight quarter of year-over-year improvement in the segment. With losses of 7,000 video subs, the period ended Dec. 31, 2012, also marked the operator's best quarterly performance overall since the first quarter of 2007, when it last added subscribers.
"We expect that, excluding the impact of Hurricane Sandy, we added subscribers in the fourth quarter," Chairman, President and CEO Brian Roberts said. In comparison, Time Warner Cable continued to shed video subs at a relatively fast clip during the period, down a net 126,000 customers. That said, and to keep Comcast's video performance in perspective, 2012 was the company's fifth consecutive down year.
Comcast's robust sub performance, healthy financials and strong prospects going forward led management to announce a 20% dividend increase to $0.78 per share and a $2 billion share buyback program. Comcast shareholders welcomed the news, sending shares of the company up on their way to their highest one-session gains since May 25, 2010.
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