Comcast Corporation (CMCSA) Earnings Preview: 2014 Profits Soar Despite Cord-Cutting, Regulatory Fears

Amid the maelstrom of bad press surrounding Comcast Corporation over the last year, it’s easy to forget that, when it comes to profits, the Philadelphia cable and media giant has proved remarkably bulletproof. Even in the face of cord-cutting fears, regulatory uncertainty and increasing resistance to its unpopular merger proposal with Time Warner Cable Inc., Comcast has delivered one blockbuster quarter after another, often blowing past analysts’ estimates.

Comcast reports fourth-quarter and full-year earnings on Tuesday, and is expected to deliver its highest annual spike in earnings per share since 2009, thanks in part to Americans’ ever-growing appetite for high-speed Internet. The company expected to report fourth-quarter net income of $2.04 billion, or 78 cents a share, an 18 percent increase over the same three-month period last year. Analysts polled by Thomson Reuters expect Comcast to report quarterly revenue of $17.7 billion, a 4.6 percent increase over $16.9 billion reported last year.

Full-year 2014 net income is expected to rise to $8.47 billion, or $3.23 a share, a staggering 30 percent increase over last $2.47 a share reported last year. Full-year revenue is expected to rise 6.3 percent to $68.76 billion.

Cord-Cutting Is Real

To be sure, the cord-cutting phenomenon is real -- Comcast posted a net loss of 81,000 pay-TV subscribers last quarter alone -- but the hemorrhaging has slowed, and some analysts say Comcast may actually post a net gain in video subscribers in 2015. More important, Comcast is making up for the loss with new broadband customers, posting a net gain of 315,000 high-speed subscribers over the last quarter, bringing its total to 21.59 million, according to Leichtman Research Group.

In essence, Comcast is transitioning from a cable company into a broadband company, but that transition won’t happen overnight. Researchers from Trefis.com estimate that profits from cable TV still make up 34.9 percent of Comcast’s stock value, compared to 28.3 percent for broadband.

The last few months has seen a number of potential threats to the traditional cable bundle, including direct-to-consumer services from HBO and CBS, and an over-the-top product from Dish Network Corp. that allows non-cable subscribers to purchase a slimmed-down package of channels and stream them live.

Although such services are being pitched as alternatives for younger consumers who have never a cable subscription, some analysts think wooing that Internet-weaned demographic won’t be so easy. “Millennials aren’t waiting for a lower priced package of the same content,” Craig Moffett, an analyst with MoffettNathanson, wrote in a January research note. “[T]hey are abandoning the ecosystem altogether in favor of content produced on and for social media at a fraction of the production cost of traditional pay TV.”

Moffett noted cord-cutting concerns last week when he downgraded Comcast shares from “buy” to “neutral” in an investor note. He also cited uncertainty over net neutrality regulation, which could see Comcast and other Internet service providers reclassified as public utilities.

Amy Yong, an analyst at Macquarie Capital, said it was a shame that regulatory fears are casting a shadow on Comcast shares. “Comcast is an elegant vehicle to gain exposure to media/broadband in a world with shifting powers across the pay TV landscape, in our view,” she wrote in January.

NBCU Content Matters

Comcast’s NBCUniversal division, which owns a number of media and entertainment subsidiaries, now makes up about 24 percent of its overall stock price, according to Trefis. The fourth quarter was challenging NBC, particularly some of its news properties, whose ratings woes were outlined in detail in a December feature in the Hollywood Reporter.

Morning show “Meet the Press” has continued to struggle despite the ouster of David Gregory, who was never able to live up to his predecessor, the late Tim Russert. The “Today” show, similarly, has never recovered from the 2012 firing of Ann Curry. And on cable, MSNBC’s protracted ratings slump has been extensively documented.

On the big screen, Universal Studios had its hits and misses. The Jim Carrey/Jeff Daniels comedy “Dum and Dumber To” earned a domestic gross of more than $86 million on a $40 million production budget, according to Box Office Mojo. Conversely, the monster thriller “Dracula Untold,” brought in $56 million domestically, despite costing $70 million to make.

NBCUniversal’s television and film divisions can expect an uptick in 2015, thanks to help from the Super Bowl on NBC and the megahit “Fifty Shades of Grey” in theaters, already one of the highest-grossing February releases of all time.

Comcast will report fourth-quarter and full-year 2014 earnings on Tuesday before the opening bell. A conference call is scheduled for 8:30 a.m. ET.

Christopher Zara is a senior writer who covers media and culture. News tips? Email me here. Follow me on Twitter @christopherzara.