Comcast : Transcript 216.2 KB

Published: 2022-09-09 08:00:24 ET CMCSA

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CMCSA.OQ - Comcast Corp at Bank of America Media, Communications and Entertainment Conference

EVENT DATE/TIME: SEPTEMBER 08, 2022 / 3:50PM GMT

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SEPTEMBER 08, 2022 / 3:50PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications and Entertainment Conference

C O R P O R A T E P A R T I C I P A N T S

Jason S. Armstrong Comcast Corporation - Executive VP, Deputy CFO & Treasurer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Jessica Jean Reif Ehrlich Cohen BofA Securities, Research Division - MD in Equity Research

P R E S E N T A T I O N

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

We're about to start our media part of the day with Jason Armstrong, Executive Vice President and Deputy CFO and Treasurer of Comcast. Did I miss any titles?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

You got it.

Q U E S T I O N S A N D A N S W E R S

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

Got it all. So welcome. Really great to have you here. Comcast has a number of different areas of business, including, obviously, Cable, NBCU and Sky. Can you talk a little bit about how the businesses fit together? What strategic advantages are gained from having them all part of the larger Comcast?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

Yes. Well, Jessica, thanks for having us here. It's actually great to be back in person this year. I think Comcast, in terms of strategic is, I'd say, a scaled and integrated content and distribution company, with leadership starting from Brian, Mike, Dave, Jeff, Dana, that's really focused on innovation and collaboration for the purpose of the total business, not just individual business units. So I think that's where we start at the core.

But the scale part, we've got scale in content, we've got scale in distribution, we've got scale in advertising, we've got scale in tech platforms. So to hit those sort of one-by-one, scale and distribution, we've got 60 million global customer relationships in high-value markets, strong consumer wallet share, with customers paying us an average of $120 in ARPU a month. So significant scale and distribution.

We've got scale in content. We spend $20 billion a year between NBCU and Sky in content production. And we hit 700 million -- if you think about sort of the scale and the reach that we have between NBCU and Sky, it's 700 million people globally. So we've got extensive reach and scale on the content side. And then there's advertising, which sort of sits in between. But if you look at what we have in advertising, I'd say we have one of the, if not the sort of foremost brands out there in premium, long-form, advertising, married with ad tech capabilities that sit in other parts of the organization.

Very recent example, when the largest SVOD company globally went out and said, we need to have advertising capabilities and are we going to build them in-house, or are we going to go externally, ultimately went externally, and I think the press reporting on it was that it was down to 3 companies. It was Microsoft and Google and Comcast.

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SEPTEMBER 08, 2022 / 3:50PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications and Entertainment Conference

And if you think about what Comcast brought to the table, I would say we were at or near the top of the pecking order in terms of the capability set. We may not have been willing to write the biggest guarantee around it, but in terms of capability set, the sales prowess we have on the ad sales and distribution side and the ad tech capabilities that come out of Cable, Sky and sort of what we have sitting in the center of the business, put us right there. And I think that was a great sort of cross-company moment to be that far into the mix on something that was that relevant.

And then finally, there's the global technology platform. And that increasingly is a hub-and-spoke model where we've got scale in global technology that sort of sits at the core of our business. And then the spoke model is how do you go serve different markets and constituents, whether it's OS systems, whether it's Flex, X1, Sky Q, Sky Glass, whatever fits per market, but around a common technology platform that can be leveraged and give us scale advantages.

And so you put this all together, last quarter was a good example, year-over-year, we grew revenue 5%; we grew EBITDA 10%; we grew earnings per share 20%. So as I think about the algorithm for Comcast, I'd say good revenue growth, really good operating efficiency and operating leverage that translated into 10% EBITDA growth.

And then with the balance sheet where we want it to be and the opportunity to return a lot of capital to shareholders which we're doing, there's the opportunity to sort of infuse financial leverage in the system as well and accelerate earnings per share growth. I would say, really good outlook for the businesses in total. We've got growth at scale, and we've got businesses that are working really well together.

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

Right. Is it important to keep them all together? Do you feel like you need to keep them all under 1 umbrella?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

Well, I think for those reasons, the starting point is we'd like to keep them together because there are obvious benefits to having them together. And it transcends scale. It's a culture that sort of starts with innovation and collaboration where it's the benefit of the sort of total company comes first and foremost.

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

Right. Before we go into the individual drivers for the divisions, can we just talk a second about investment spending and how you prioritize between the different units? How do you weigh the level of investment for these assets against potential other uses of capital, whether it's M&A or something else?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

Well, I think that the starting point here is we're not capital constrained, and that's a very nice place to be. That is not true of everyone out there in our peer set. We have a very strong balance sheet that's exactly where we want it to be. We have very strong free cash flow production. And so that allows us to go invest in a lot of different parts of the business and not have to sacrifice 1 part for the other. Instead, we can say if they are high returning, high potential projects, we're going to go fund them and make sure we have a number of growth runners.

So if you look across the business, I would tell you, priorities are, make sure our broadband network, we're going to continue to invest in it. We can talk about this over the course of this session. We're making substantial investments in the broadband network. We actually had an announcement out today about real sort of concrete steps we're taking in a timeline around mid-splits, and ultimately, DOCSIS 4.0 when we get there, which I think is sooner rather than later.

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SEPTEMBER 08, 2022 / 3:50PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications and Entertainment Conference

We're investing pretty substantially in business services, and that's more around where do we find capabilities that can augment what we're doing and how we serve the market, realizing we've got a scaled business that we've made our way into in the SMB space, and we're now tackling mid- and large-size enterprises. We did an acquisition last year that brought us a lot of capabilities in a specific segment, in particular, that was SD-WAN. But we're in a unique opportunity where we can buy capabilities and then go extend them across a base that's large and growing in business services. So we'll continue to do that.

Then there's wireless where we'd say we want to accelerate growth. I think that's what you've seen from us. And there's opportunities to be more aggressive in wireless and drive even more growth and accelerated growth over time. All at the same time, we're engaged a streaming pivot, and that's NBC from linear to streaming and the investments required in that. There's obviously some dilutions upfront. We're sort of in the middle of that now, but we're funding it to get to the other side with a very strong outlook, we think, for Peacock.

And then there's Theme Parks. And Theme Parks, we've got a great outlook as well. I know you've done a lot of work on Theme Parks and sort of share our view on Theme Parks, which is we're very bullish on parks. And we've got a lot of attractions that we've either put in place the last couple of years that a lot of customers haven't experienced. And that's still something that's ahead of them or attractions that are sort of in the pipeline right now for '23, '24 and '25, that will be significant and significant growth drivers.

So I think we've got a lot of investments in the system. But at the same time, we're returning a lot of capital to shareholders. I think if you look historically and took sort of our peak capital allocation numbers on buyback, we are run rate double that at this point this year. So unlike anything we've seen historically with Comcast, and we're happy to be there.

We did $3 billion in buybacks in the first quarter. We did $3 billion in the second quarter, puts us on a run rate for $12 million for the year, plus a buyback or a dividend of $4.5 billion, and you're talking about return of capital back to shareholders in the form of buybacks and dividends that's approaching $17 billion against a market cap where the implied yield back to the shareholder would imply over 10% right now. So very healthy returns back to shareholders, while at the same time, we've got a number of growth runners in our business.

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

Great. So let's go into the specific divisions and start with broadband. I mean this last quarter was the first time ever that you guys reported no growth. And the trend in the third quarter which is the slowest part of the quarter, always seasonally is the slowest part continued that trend with a loss. So now we're kind of in the back-to-school period, September has always been a critical month. But what can you tell us? Can you give us any update on what's going on in the third quarter?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

Yes. We've still got a few weeks left to go in the third quarter. So I won't pre-announced subs today because there's still some time ahead of us. And also, that's not generally our practice. Marci would probably kill me, she's in the front row here. But, I would tell you, it's competitive. It's the same trends that were in place in the second quarter have continued into the third quarter, and that's -- there's a combination of macroeconomic environment, which has suppressed move activity, which moves are positive for us.

And there's a competitive environment, which we can get into. That's created a more challenging environment. You saw that, in part, in the first quarter. You definitely saw that in the second quarter. And so when we talked about the third quarter on our July earnings call, we gave an outlook that said, hey, to date in July, which we were at the end of July at that point, we said we had lost 30,000 subs in July, but we expected back-to-school to be a tailwind in August and September. And as I sit here right now, the outlook that we gave is kind of exactly what's played out. We had a little bit of a headwind, obviously, that we were working against in July, and we've made some progress in August and September.

So I think, as we step back, though, we'd say, more importantly, let's diagnose sort of really, really the environment right now and then ultimately how you attack this and win over time. I think right now, as I said, move activity is suppressed. Historically, jump balls have actually been a positive

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SEPTEMBER 08, 2022 / 3:50PM, CMCSA.OQ - Comcast Corp at Bank of America Media, Communications and Entertainment Conference

thing to the cable business. We tend to take disproportionate share. I think our view is that's still true today. It is more competitive, but it's still true that jump balls are a good thing for us.

And on the competitive side, there's sort of 2 impacts. There's fiber, which is very much a known quantity, and we've competed against fiber for a very long time. And then there's fixed wireless. So to take both of those, on fiber, we've been competing against fiber for 2 decades. And fiber has gone from 0% to 40% sort of across our footprint in a fairly linear fashion. And in that time frame, we've become America's #1 broadband provider, 32 million subs. I would tell you in the last couple of years through the pandemic, we added 3 million subscribers in an environment where fiber was actually picking up in terms of the presence in the markets that served against us.

So I think we feel very good. Dave and team have had a terrific playbook to go against fiber. And that continues, and I think that will continue in the foreseeable future and feel good there.

Fixed wireless is newer, right? It's new, it's national. It's a gross add equals a net add because there's not really any churn in the system yet, although there will be. But when you step back and say, okay, longer term, how do we compete, how do we win? And unpack those 2, fiber is the real long-term competitor. And it always has been. Our view hasn't changed. It's a very viable competitor.

Fixed wireless is clearly having its moment right now. But when you think about the product offering and long-term competitive advantages that either we'd have or fixed wireless we have, I think we feel great about our positioning. I do think this is a moment in time, I think, for customers that tend to be switchers that are willing to tolerate lower speeds, higher latency, not as good coverage in the household because that's not where the focus is really been, whereas our networks are strong into a point in the household and then even stronger as we distribute within the household. We spent decades evolving our WiFi architecture in the house.

So I think you take any one of those factors and then you say, is this really what fixed wireless companies -- what do they show up to do every day? They're wireless companies. That's where their EBITDA stream is. That's the priority traffic on their network. And so if you're willing to tolerate sitting behind all that wireless traffic as it gets more and more congested and your experience degrades, that may be who you are as a fixed wireless customer. I think we step back and say, competitively, we feel very good about competing against that.

And longer term, if you think about it, any secular trend out there, whether it's AR, VR, Metaverse, low latency gaming, the move from linear to streaming, every one of those is -- those are bandwidth hogs. That's going to continue to move up usage profiles across the network. Those are all trends that work in our favor. And so I think we feel very good about the long-term outlook and how we compete. But near term, it is competitive. And I think that's reflected in what we said in the second quarter earnings call, it's reflected in what we saw in the second quarter and the outlook we gave for the third quarter, and that's -- we'd probably reiterate that today.

Jessica Jean Reif Ehrlich Cohen - BofA Securities, Research Division - MD in Equity Research

Right. And then just to go back to something you started with, the mid-splits and moving to DOCSIS 4.0. Can you just talk a little bit about those investments and initiatives and how it will improve your network, over what period of time? How much do you need to invest?

Jason S. Armstrong - Comcast Corporation - Executive VP, Deputy CFO & Treasurer

Yes. I think we're -- we put out a release this morning that's a lot more granular than we have been on our path. And I think it's important, particularly given the competitive environment. We said we've got -- if you think about our network, we have a deeply deployed fiber network with DOCSIS technologies sort of going into -- the last mile into the home. And what that provides us and gives us confidence in is these are low cost to upgrade. These are relatively future-proof technologies. There's a pipeline on DOCSIS that would say mid-splits and then DOCSIS 4.0 right behind it, gives us sort of an ultimate end goal of multi-gig symmetrical across our base.

And today, we gave a little bit more clarity on mid-splits. We're actually in the market right now on mid-splits. We expect to have 20% of our base equipped by the end of the year. That's going to mean multi-gig download speeds, and it's going to mean 5x to 10x improvement in upload speeds.

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Comcast Corporation published this content on 09 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 September 2022 11:59:00 UTC.