3/11/2021
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`Why Comcast Leads the Pack - Bloomberg
`
`Business
`
`Why Comcast Leads the Pack
`
`Low debt, consolidated markets, and cutting-edge technologies make this company a cable-biz marvel: An outfit that might
`soon turn a profit
`
`May 31, 2001, 9:00 PM PDT
`By Jane Black
`
`Investors have sought out cable stocks in 2001 as a result of the business model's perceived stability. Cable offers slow but steady
`growth. On average, cable companies add new subscribers at a rate of 1% to 2% per year and see annual gains in operating cash
`flow of 10% to 12%. And the business isn't unduly affected by economic slowdowns. After all, even the most fearful consumers or
`laid-off workers aren't going to stop watching TV -- if anything, they'll watch more.
`
`In the stolid cable business, Comcast (CMCSA ) is a standout. The company, which has 8.4 million subscribers, has won plaudits
`for smart acquisitions and low debt. Now it looks poised to move away from the cable pack. After years of huge capital
`expenditures to upgrade its network, Comcast is ready to reap the benefits of a big broadband buildout. And it could soon become
`an anomaly: a cable company that operates solidly in the black, even after depreciating the construction cost of its network.
`"Comcast understands its business very well," says Michael Goodman, an analyst with research firm Yankee Group.
`
`CRITICAL INDICATOR.
`
`  On May 8, Comcast met analysts' expectations of $641 million in operating cash flow -- a key measure of financial health in the
`cable business. More important, the Philadelphia-based company increased its guidance for cash-flow growth for the coming year.
`Instead of 10% to 11%, Comcast now expects to reach 13% in 2001, a high growth rate for the cable biz and a critical indicator that
`the company's stratey is yielding results.
`
`For a cable stock, though, Comcast isn't cheap. It's trading at around $41 a share, or 14 times Standard & Poor's estimate of 2001
`operating cash flow per share. That represents a slight premium over its peers. First Call's target share price for the end of 2001
`
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`Why Comcast Leads the Pack - Bloomberg
`3/11/2021
`ranges from $48 to $61. Chalk up the analysts' optimism to Comcast's solid financial condition and a smart operating stratey.
`
`For starters, the company has one of the lowest debt-to-cash-flow ratios in the industry. That ratio is important since it indicates
`how quickly a company will be able to generate free cash flow -- actual profits, the Holy Grail of the cable industry. Most cable
`companies operate in the red due to huge outlays on building and upgrading networks. For 2000, Comcast's ratio was 3.5 to 1, a
`low number in the cable biz. Dave Goldsmith, a cable analyst at Buckingham Research, believes Comcast will be the first cable
`company to become profitable. If and when it does, the stock could soar.
`
`INCREMENTAL REVENUES.
`
`  The outlook is even brighter if you consider what Comcast is offering customers. By the end of 2001, it will be able to provide
`95% of the homes within its signal range with digital-cable service, and 77% of those homes with high-speed Internet access
`through its partnership with AT&T's @Home. Digital cable promises to provide more channels and a clearer picture, which could
`drive incremental revenues through more value-added service offerings.
`
`Part of Comcast's strength comes from its early stratey of clustering its cable systems. About 52% of its customers are in its mid-
`Atlantic supercluster, the corridor from Baltimore and Washington through Wilmington and Philadelphia and into central New
`Jersey. Contiguous systems and a more concentrated audience make it easier for Comcast to sell advertising. The company can
`now pitch advertisers on its 2 million cable subscribers in the Philadelphia metropolitan area. That compares to just 400,000 two
`years ago. The clusters also keep down the costs of rolling out new services since they require fewer control centers to manage
`and maintain.
`
`Among cable companies, Comcast has done a good job of translating upgrades into new customers. Already, 6.6% of subscribers --
`that's 542,000 consumers -- have signed up for the company's high-speed Internet service. That puts Comcast ahead of Adelphia
`and Charter Communications, with 3.4% and 5.1%, respectively, and just behind Cox Communications, with 9.4%. Standard &
`Poor's is projecting Comcast will have 800,000 high-speed subscribers by the end of 2001. That growth could spur cable revenues
`by nearly 10% in the coming year.
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`IN VOD WE TRUST.
`
`Why Comcast Leads the Pack - Bloomberg
`
`  Comcast is also in the forefront of video on demand (VOD). This service will theoretically trump both pay per view and video
`stores by allowing cable companies to offer a selection of thousands of movies that viewers can order and watch anytime without
`getting off the couch. In April, Comcast purchased 79 VOD servers from VOD integrator Concurrent. Comcast plans to roll out VOD
`in eight still-undisclosed markets by the end of 2001.
`
`"The numbers aren't huge yet, but by the end of the year, you'll see more video on demand in Comcast systems than in any other,"
`Goodman says.
`
`Still, Comcast could soon face serious competition. Satellite outfits grabbed 15 million customers in the U.S. in the '90s. Since
`satellite service is digital by definition, providers can offer additional services such as VOD and interactive TV at a much lower
`cost. Furthermore, a deal that would see either Rupert Murdoch's News Corp. or EchoStar buying DirecTV would put even more
`pressure on cable companies by creating a mammoth satellite competitor.
`
`HOOPS AND HOCKEY.
`
`  Comcast, though, has local programming that could fend off a strengthened satellite competitor, according to Tom Eagan, a cable
`and satellite analyst at UBS Warburg. For example, the company owns Philadelphia's basketball team, the 76ers, and the city's
`Flyers hockey team. If you want to see these teams on the tube in Philly, you need Comcast. Finally, the company could buy more
`cable systems from debt-laden AT&T. Small and midsize systems aren't in line with AT&T's stratey but, in the right locations,
`could be a good fit for Comcast, Eagan says.
`
`Questions also remain about satellite's ability to become price-competitive against cable in the short term. For now, cable may
`look like a low-growth industry -- but that's misleading, especially when it comes to Comcast. Don't be surprised if this stock comes
`to life soon.
`
`Black covers technoloy for BusinessWeek Online in New York
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`3/11/2021
`Edited by Alex Salkever
`
`Why Comcast Leads the Pack - Bloomberg
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