Comcast Corporation (CMCSA) Earnings

Management highlights

### Planned Corporate Separation - Comcast announced its planned split into two independent focused companies (connectivity/platforms and media/entertainment) approximately three weeks prior to the call, and early stakeholder reaction has been overwhelmingly positive. - The separation is on track to complete in approximately one year; management is working to finalize transaction details, and will structure both companies with strong investment-grade balance sheets to support independent growth strategies. - Michael Angelakis will return to the company to accelerate separation and growth initiatives, with broad industry support and deep institutional knowledge of Comcast. ### Connectivity and Platforms Strategic Pivot - Almost one year into a deliberate strategic pivot to prioritize converged broadband and wireless offerings, management reports clear progress on core goals: improving customer experience, simplifying pricing/packaging, and building a durable long-term converged customer base. - Broadband net subscriber losses improved 34,000 YoY, and net promoter scores (NPS) continue to improve YoY, signaling customer acceptance of the new strategy. 45% of the broadband base is now on gig+ speed tiers. - Wireless hit a key milestone of over 10 million total lines, representing only 7% penetration of the total addressable market in Comcast's footprint, leaving significant long-term growth runway. Q2 2024 delivered a second consecutive record quarter of 448,000 net additions, with improving churn and strong early conversion of free promotional lines to paid plans. 30% of new postpaid connects are for higher-value premium unlimited plans, demonstrating competitive strength across market segments. - Business services launched its T-Mobile MVNO partnership for business customers in Q2, with early encouraging results; enterprise services continue to gain market share, with advanced solutions now reaching 70 cents of revenue for every $1 of core connectivity sold, up from 20 cents three years prior. ### Media and Entertainment Operational Updates - Peacock achieved profitability one quarter ahead of internal expectations, adding 2 million paid subscribers for two consecutive quarters to reach 48 million total, and achieved its highest ever monthly viewership in June 2024, driven by the FIFA Women's World Cup and *Love Island*. - NBCUniversal Studios had a strong year of theatrical performance, with the *Minions* franchise passing $6 billion in global gross to become the highest-grossing animated franchise of all time; recent release *The Odyssey* delivered Christopher Nolan's biggest global opening of all time, confirming the strength of Comcast's creative partnerships. - Sky is progressing on its proposed acquisition of ITV's media and entertainment business in the UK, which will combine Sky's premium content, connectivity and sports leadership with ITV's large domestic reach to strengthen advertising and streaming capabilities and create operating efficiencies. ### Theme Parks - The new Epic Universe park in Orlando continues to meet expectations, with strong guest demand and higher per-capita spending. Broader Orlando attendance softened more than expected starting in June 2024, a trend that has continued into Q3, which management attributes to temporary factors including higher fuel prices and weaker consumer sentiment. Internationally, Osaka park attendance remains pressured by China-related travel restrictions, while Beijing park operates against a challenging macroeconomic backdrop.

Guidance

- Management maintains its prior expectation that pressure on broadband ARPU and Connectivity & Platforms EBITDA will begin to modestly improve starting in the third quarter of 2024, as the business anniversaries the initial go-to-market pivot investments and free wireless lines convert to paid relationships at accelerating volumes in the second half of the year. - Long-term, management expects the separation will unlock growth for both independent businesses by giving each greater focus, agility, and strategic freedom to pursue their respective priorities. - Peacock profitability is expected to continue improving on an annual basis, though quarterly profitability will fluctuate based on the timing of sports rights and content release schedules. - Share repurchases have been paused effective July 1, and will remain paused through the separation period to ensure both separated companies are properly capitalized with strong investment-grade credit ratings.

Segment performance

1. Connectivity & Platforms: Convergence revenue declined 3.2% year-over-year (YoY), with connectivity and platforms EBITDA down 5.8% YoY, consistent with pre-committed investment in the go-to-market pivot. Broadband had a net subscriber loss of 167,000, an improvement of 34,000 losses YoY; broadband ARPU declined 3.8% YoY. Wireless added a record 448,000 net lines, growing wireless service revenue 14% YoY, ending the quarter at 10.2 million total lines. Business services revenue grew 3.7% YoY ( ~3% underlying growth excluding a non-recurring long-term fiber lease benefit) and EBITDA grew 5% YoY, driven by strong enterprise solutions demand. This segment contributed 55.2% of total consolidated revenue. 2. Content & Experiences: Total segment revenue grew 18% YoY, with mid-single digit EBITDA growth overall. - Media: Revenue increased 25% YoY, EBITDA increased 4% YoY. Peacock reached its first profitable quarter with $189 million EBITDA, grew revenue 54% YoY (distribution +50%, advertising +70%), and added 2 million paid subscribers to reach 48 million total. This performance came even as the segment absorbed the full first-year cost of the NBA media contract. - Studios: Revenue increased 25% YoY, EBITDA increased by $141 million YoY, driven by strong performance from recent theatrical releases including *Super Mario Galaxy*, *Minions and Monsters*, and *Obsession*. - Theme Parks: Revenue increased 3% YoY while EBITDA declined 5% YoY, driven by ongoing attendance pressure at Osaka from China-related travel restrictions. U.S. parks saw partial growth offset by broader Orlando attendance softening starting in June that has continued into Q3. This segment contributed 44.8% of total consolidated revenue. Consolidated overall: Revenue increased 5% YoY, adjusted EBITDA declined 5% YoY, adjusted EPS was $1.04, and $4.6 billion in free cash flow was generated in the quarter.

Risks & headwinds

- The broadband market remains intensely competitive, with ongoing fiber expansion, aggressive fixed wireless competition, and emerging satellite competition (including Starlink) that is expected to grow over time, particularly in rural and underserved markets. - Promotional competitive intensity has increased in some markets, with some competitors engaging in irrational pricing behavior that pressures industry margins. - U.S. theme park attendance has softened more than expected in Orlando, driven by weaker consumer sentiment and higher travel costs, with the softness extending into the third quarter of 2024. - International theme parks face ongoing headwinds: Osaka park attendance remains pressured by China-related travel restrictions, and the Beijing park operates against a challenging macroeconomic backdrop. - The planned separation of the two businesses is a large, complex transaction that requires completing numerous outstanding structural, regulatory, and capital structure details over the next year. - Near-term investment in the broadband/wireless pivot continues to pressure ARPU and EBITDA in the Connectivity & Platforms segment in the short term, even as it positions the business for long-term growth.

Analyst Q&A

• Q: What are the current competitive dynamics in the broadband market, and how is Comcast positioned? /

  A: Management confirms competition remains intense and will grow more competitive over time, with expanding fiber, aggressive fixed wireless, and emerging satellite competition, plus increased promotional intensity in some markets. Comcast’s core advantage is its wired multi-gig network with industry-leading Wi-Fi reliability, and recent organizational and pricing changes have streamlined go-to-market and improved agility to respond to competitive moves. Comcast’s converged broadband-wireless offerings provide a major competitive edge, with only 7% total wireless penetration in its footprint and far lower converged ARPU than competitors, leaving significant long-term growth runway.

• Q: Is Starlink a meaningful competitor, and would Comcast consider a partnership with Starlink? /

  A: Currently Starlink is not a meaningful competitive factor in Comcast’s core markets, but management is not complacent and expects it to become a larger competitor over time, particularly in rural/underserved areas. Comcast’s advantages over satellite include a consistently higher-performing wired network, top-ranked Wi-Fi reliability, and ongoing improvements to customer experience that address historical competitive vulnerabilities. Comcast already has an existing partnership with Starlink for Comcast Business enterprise customers, and has a long history of exploring value-creating partnerships that improve customer service, so it would consider any additional opportunities that align with business goals.

• Q: Is the prior outlook for abating ARPU and EBITDA pressure in H2 2024 still intact? /

  A: The prior outlook remains unchanged: management expects modest improvement in pressure starting in Q3 2024. The current EBITDA decline stems from deliberate investments to simplify pricing, aggressively scale wireless, and improve customer experience. Two key tailwinds will drive improvement: accelerating conversion of free promotional wireless lines to paid plans, which is tracking ahead of expectations, and lapping the initial one-time investments in customer experience improvements. Long-term, management remains confident the business will return to growth, supported by rising broadband traffic demand driven by AI, large untapped wireless growth opportunities, and ongoing steady expansion of business services.

• Q: Does NBCUniversal have sufficient scale to compete as an independent media company after separation, or will the separation enable further consolidation? /

  A: Management confirms NBCUniversal has all the scale, assets, and industry relationships needed to compete effectively as an independent business. The portfolio is highly diversified, with leading broadcast, streaming, cable, film, studios, theme parks, and Sky in Europe, with strong cross-asset synergies (IP from studios feeds streaming and parks, for example) that create a virtuous growth cycle. As an independent, NBCUniversal will retain a flexible open partnership strategy, which allows it to collaborate with other platforms and creators rather than operating a closed walled garden, a unique advantage that supports long-term growth.