Why Comcast's Happiest Quarter in 7 Years Was Probably a Fluke

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Cable installation truck in Washington DC
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The cord cutting trend may have stalled at Comcast (CMCSK), but let's not assume that the country's largest cable provider has completely reversed the pattern of folks kissing their cable providers goodbye.

Yes, in the fourth quarter Comcast posted its first sequential net gain of video customers since early 2007. It closed out 2013 with 43,000 more cable TV subscribers than it had in September. After 26 quarters, growth is back on the cable menu at Comcast.

Don't expect it to last.

It's All Connected

Tuesday morning's announcement wasn't much of a revelation. CEO Brian Roberts spilled the beans at a Citigroup conference in Las Vegas three weeks ago. He pointed out how Comcast posted a "modest" gain in video customers during the fourth quarter. However, even Roberts wasn't ready to declare it the end of the cord cutter era.

The fourth quarter is a seasonally strong period for Comcast, and it's widely expected that it will post another year of net video customer defections for all of 2014. Yes, Comcast may have grown in the past three months to serve 21.7 million cable TV accounts, but it started out last year with 22 million.

There are plenty of reasons to feel that the uptick won't stick. Beyond the seasonality, we can point to the current strength in the housing market, which is unlikely to stick around in 2014 as interest rates move higher. Some see Comcast as a thinking investor's housing play since folks buying new homes often follow the purchase with a call to get cable installed. Therefore, if the real estate market cools, demand for new subscriptions will likely follow.

We also can't forget that the services that many credit with triggering the cord-cutting trend are still growing even faster. Netflix (NFLX) added 2.3 million net subscribers domestically during the same quarter. We also saw the introduction late last year of three extremely popular devices -- the Xbox One, PS4, and Chromecast -- that make it easier to watch Web-based video.

To Xfinity and Beyond

It's not easy being Comcast. Until the fourth quarter's welcome uptick in video customers, it had been relying solely on cable price increases and the bundling of cable TV with broadband and Internet phone service to keep growing.

The steady growth of cable bills doesn't necessarily mean Comcast is being greedy. Cable networks and broadcasters continue to demand more money for the rights to carry their channels. Comcast and its smaller rivals simply pass those expenses on to their customers.

And from a financial perspective, it's doing the right things. On Tuesday morning, Comcast announced that it was increasing its dividend by 15 percent. It's also beefing up its share buyback efforts. However, the root of the matter is that it's hard to grow a business when the customer is unhappy.

"Comcast is always at or near the bottom of most customer service and satisfaction surveys," Consumerist recently pointed out. If subscribers aren't happy and they're tiring of increases, isn't it more likely for what's happened in 26 of the past 27 quarters -- sequential declines in video customers -- to be the norm?

A quarter with more installations than cancellations is a refreshing development, but it won't be a surprise if Comcast reveals it has resumed its losing ways in its next report.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our newsletter services free for 30 days.​

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muscle13

New all time high again for Comcast! Only took 2 days this time around Rick. And on a down day for the market. Thanks again Rick for blasting them!

January 31 2014 at 3:49 PM Report abuse rate up rate down Reply
muscle13

one other thing Rick - Did you consider the real story here is cable taking back share from satellite TV finally because of all their bundling efforts. As Craig Moffett was quoted today

"Comcast’s return to positive video subscriber growth, even if it is only for a single quarter, is an unmistakable sign that their days of losing share to satellite are almost over,” said Craig Moffett, an analyst with MoffettNathanson Research

http://www.ft.com/intl/cms/s/0/a2500316-882c-11e3-8afa-00144feab7de.html#axzz2rqVYyy8S.

January 29 2014 at 9:45 PM Report abuse rate up rate down Reply
muscle13

Another hit piece on Comcast Rick? Did you consider X1 is being rolled out nationally and includes web apps on the video side? Did you consider Comcast stated on the conference call that housing growth didn't have much of an impact at all?Did you even consider that Comcast already stated that this is the first step in a process and its going to take some time to turn video subs around? Do you think you are revealing something new Rick? But it's another hit piece and as happens after all your Comcast hit pieces I am expecting a new all time high in the stock price shortly.......Let's see how long it takes.

Hopefully Charter gets TWC and Comcast gets the east coast wrapped up in the deal. Thanks as always Rick.

January 29 2014 at 9:34 PM Report abuse rate up rate down Reply