Subscriber Count Drops at Comcast

Comcast Corp.’s failed bid for Walt Disney Co. this year was interpreted by some on Wall Street as a sign that the pay-TV giant had lost faith in its core business and needed a lift from a content-rich entertainment company.

On Wednesday, figures released by Comcast seemed to confirm that interpretation. Comcast said it lost more subscribers and signed up fewer high-speed Internet subscribers in the second quarter than many analysts had predicted.

As a result, despite better-than-expected earnings, Comcast’s shares dropped an additional 4%.

Comcast reported profit for the quarter of $262 million, or 12 cents a share, compared with a net loss of $22 million, or 1 cent a share, a year earlier. Revenue rose 10%, to $5.1 billion, up from $4.6 billion.

Comcast’s disappointing subscriber numbers were seen by some investors as a red flag that competition with phone giants and satellite TV providers was intensifying, raising the prospect of price wars and strained profitability.

Comcast’s shares fell $1.18 to close at $27.56 on Wednesday on Nasdaq. The company’s shares have fallen 15% since its February bid for Disney.

But several analysts said Wednesday that Wall Street’s reaction was unwarranted.

“The anxieties about competition are a bit overblown,” said Craig Moffett, who covers Comcast for Sanford C. Bernstein & Co. “There are no real signs of intensifying competition.”

Moffett said Comcast’s margins and its revenue per customer would not be rising if competition was reaching new heights. Comcast’s margins rose to 40% during the quarter, and its revenue per high-speed Internet subscriber rose to $43.52, up from $42.25 in the first quarter of the year.

Some analysts also were impressed by Comcast’s ability to tame soaring programming costs after the company tripled its size through the acquisition of AT&T; Broadband.

Moffett and other analysts agreed with Comcast’s assessment that recent subscriber weakness was mostly because of seasonal factors. Among those who disconnect from services in the spring are college students on break and retirees in Florida who head north after winter.

During the second quarter, Comcast lost about 96,000 basic cable subscribers, roughly 0.4% of its total of 21.5 million subscribers, the largest customer base among the nation’s cable operators.

The company added 327,000 high-speed Internet subscribers during the period, compared with 351,000 in the same quarter last year.

Still, Comcast officials acknowledged that seasonality was only partly to blame.

“We lost a little bit more than we anticipated,” said Comcast Chief Operating Officer Steve Burke in a conference call with analysts. “Part of that is because we’ve had such a focus on driving margins and launching new products.”

He said the company would be spending more money marketing its basic cable business to generate growth, but conceded that it’s getting tougher to gain new customers now that about 85% of the nation’s homes have some form of pay TV.

Analysts said satellite TV rival EchoStar Communications Corp. was not adding subscribers at the rapid-fire rates of the past, despite its new alliance with phone company SBC Communications Inc. What’s more, some analysts said the broadband market was cooling somewhat after a red-hot year in 2003, when phone companies stepped up competition by discounting service.

Broadband analyst Bruce Leichtman said the leading cable and phone companies had signed up only about three-quarters as many broadband subscribers in the second quarter as they did in the same period a year earlier.

He said the price wars also were abating.

Comcast officials said they were so confident in their business that the company was doubling the size of its previously announced stock buyback program to $2 billion, from $1 billion.

Comcast Chief Executive Brian Roberts also said the company was increasing its 2004 forecast for operating cash flow, a measurement used by cable companies that excludes depreciation and amortization charges and other expenses associated with the capital-intensive business.

It expects 18% operating cash flow growth for the year, up from its earlier expectation of 15%.