Before the open today, Comcast (CMCSA) issued mixed 1Q19 results, beating analysts' earnings expectations, but coming up short on the top line. However, the stock is trading higher by 3% and is making new 52-week highs as investors are focusing on its strong Adjusted EBITDA growth and its improved EBITDA margin guidance for FY19.
Furthermore, the company downplayed the revenue miss during its earnings call, stating that revenue came in almost exactly as it had expected, when adjusting for the Super Bowl and Olympics in the year ago period.
For the quarter, CMCSA generated EPS of $0.76 (+15% yr/yr), exceeding the $0.68 consensus, with revenue up 18% to $26.86 bln, missing the $27.27 bln consensus. Similar to last quarter, the revenue growth is skewed due to the Sky acquisition last October. If the acquisition had occurred on January 1, 2017, CMCSA's revenue would be lower by 3.3% on a pro forma basis as Sky experienced a 5% drop in revenue this quarter.
While its top-line performance has been a little shakier, the company has now topped analysts' earnings expectations for thirteen straight quarters while it churns out its strongest Adjusted EBITDA growth in years. The impressive results have been driven by a few catalysts, including healthy growth in its high-speed internet business, steady new customer growth, the acquisition of European pay-TV company Sky, and the reduction of costs.
In its Cable Communications business, revenue increased by 4.2% to $14.3 bln, adding 300,000 new customer relationships in Q1. The standout performer in this group continues to be high-speed internet, up 10.1% in the quarter, following last quarter's 9.3% growth. Adjusted EBITDA climbed by 9.8% to $5.8 bln, achieving its best growth in over ten years.
The impressive performance in this segment is largely attributable to customers' desire to stream more content, requiring faster and better internet connectivity. That's good news for CMCSA and its investors because streaming is still in the early stages of its growth cycle, and, because CMCSA is set to launch its own streaming service next year.
Turning to its NBCUniversal segment, revenue was down 12.5% to $8.3 bln, largely attributable to a 29% drop in broadcast television advertising sales. However, the decline here is a bit misleading. In the year ago quarter, NBCUniversal benefited from broadcast of the Winter Olympics, as well as Super Bowl LLI. Those two events contributed nearly $1.2 bln in revenue combined. On a more apples-to-apples comparison, revenue was up 7.1% in the quarter for this business segment.
While CMCSA does not provide specific EPS and revenue guidance, it did say during its earnings call that it now expects a 100 basis point improvement in EBITDA margin this year. That is up from its former expectation of 50 basis points and is a main reason why the stock is trading higher today.
Along with the higher revenue growth driven from high-speed internet and the Sky acquisition, the company continues to cut unnecessary costs out of the business while streamlining the customer experience at the same time. Nearly 80% of its customer interactions are now completed digitally, while both truck send-outs and calls handled by agents decreased nearly 10% in Q1. This helped push its EBITDA margin higher by 200 basis points yr/yr to 40.1%.
Key Takeaways: With the Sky acquisition, the lapping of a difficult yr/yr comparison due to the Super Bowl and Olympics, and the transition to streaming content, there were several moving parts to CMCSA's results. But, the underlying theme is that the company is generating healthy earnings, EBITDA, and cash flow growth as the shift to streaming progresses. CMCSA also has a couple key levers for margin expansion, including the launch of its streaming service next year and the continued reduction in operating costs as it streamlines its customer service operations.