Comcast Profit Surges on Digital Service Demand

Comcast Corp. (CMCSA), the top U.S. cable operator, said on Thursday its quarterly profit rose nearly fivefold, boosted by growth in high-speed Internet subscribers and surging demand for new digital video services.

Comcast, based in Philadelphia, also said its board of directors authorized the repurchase $2 billion of its stock.

First-quarter net profit rose to $313 million, or 14 cents a share, from $65 million, or 3 cents a share, a year earlier.

Revenue rose 9.2 percent to $5.36 billion.

Analysts expected a profit of 11 cents a share and revenue of $5.38 billion, according to Reuters Estimates.

"Comcast had an impressive balance of customer and financial growth," said Thomas Eagan, an analyst at Oppenheimer & Co. "Often, cable operators have to grow their customers at the expense of higher marketing costs. But they were able to (manage) both."

There was a loss in basic video subscribers of 29,000 in the quarter. Investors hope that new digital services will improve this baseline metric for the cable industry.

"Like it or not, basic subscribers is taken as a litmus test of the fundamental competitiveness of the platform," said Craig Moffett, an analyst at Sanford C. Bernstein. "Investors are impatient to see Comcast start to regrow its basic subscriber count."

Comcast said more basic video subscriber losses are expected in the second quarter, with net additions returning in the second half of the year.

Cablevision Systems Corp, which rolled out new digital phone services (search) earlier, sees growth of about 1.5 percent to 2.0 percent in net basic subscribers for 2005, compared to Comcast's forecast of flat growth.

Cable operators have been pushing new digital services such as phones, video-on-demand (search) and digital video recorders to bolster defenses against competition from telephone and satellite television companies.

"New services continue to drive our growth and we believe we're striking the right balance between focus on growth and focus on free cash flow and profitability," Brian Roberts, chief executive officer of Comcast, said on a conference call.

Comcast, which sealed a joint deal last week with Time Warner Inc. (TWX) to buy bankrupt cable operator Adelphia Communications Corp. (search) , is expected to add 1.8 million new video subscribers as a result of the deal and related transactions with Time Warner.

Shares of Comcast rose 13 cents, or 0.4 percent, to $32.05 on the Nasdaq.

The company added 414,000 net high-speed Internet subscribers in the first quarter, ending the period with 7.4 million subscribers.

Demand for digital video recorders built by Motorola that record high-definition programming rose sharply in the quarter. Comcast added about 428,000 new digital video recorder customers.

Wall Street is keen for any information regarding Comcast's recently launched digital phone service, a key initiative designed to bolster financial growth in the future as the business of high speed Internet services mature.

"Clearly there will be a lot of time spent on the telephony product and what the pace of roll-out should be," said Jeffrey Bray, managing director of Babson Capital Management, referring to digital phone services. Babson owned nearly 7 million shares of Comcast as of Dec. 31.

Comcast added 7,000 new digital phone customers in its first quarter selling the product, but revenue declined 3.1 percent to $173 million as it shed some traditional phone subscribers it had inherited from AT&T.

Stephen Burke, chief operating officer of Comcast, said the company expected to lose "tens of millions" of dollars from the wider release of digital phones service.

Earnings before interest, taxes, depreciation and amortization rose 17 percent to $2.03 billion and free cash flow rose 82 percent to $722 million.

Looking ahead, Comcast raised its full-year operating cash flow growth to a range of 14 percent to 15 percent, from an earlier expectation of 12 percent.

Full-year 2005 capital expenditure is expected to rise between $200 million and $300 million to a range of $3.2 billion to $3.3 billion.

It reiterated expectations for full-year revenue growth of about 10 percent and expects to add about 2.5 million orders for its services for the year.