Comcast profit up on high-speed net users

Comcast Corp., the top U.S. cable operator, Thursday said its quarterly net profit rose 10 percent, boosted by growth in high-speed Internet customers.

But the company said it is targeting strong long-term growth with plans to invest in highly profitable businesses such as digital phone services, rather than focusing on short-term profits.

"Finding the right balance is more of an art than a science," Steve Burke, chief operating officer of Comcast, told analysts.

Burke sees digital phone service as a replacement for high speed Internet service, Comcast's most profitable service, as the company's primary growth initiative.

"At some point, high-speed data (services growth) has got to slow down," Brian Roberts, Comcast's chief executive, said. "We're already planning the next wave of products."

Comcast plans to invest $150 million to $200 million in digital phone and video-on-demand services this year.

Fourth-quarter net profit rose to $423 million, or 19 cents a share, from $383 million, or 17 cents a share, a year earlier. Revenue rose 10.6 percent to $5.24 billion.

Comcast beat Wall Street profit estimates of 12 cents a share but narrowly missed revenue estimates of $5.26 billion, according to Reuters Estimates.

The Philadelphia-based company, which is jointly bidding about $17 billion with Time Warner Inc. to buy bankrupt cable operator Adelphia Communications Corp., added more than 437,000 high-speed Internet subscribers in the fourth quarter, ahead of most Wall Street estimates.

It ended 2004 with 7 million high-speed data customers.

It added a net 60,000 basic video subscribers, ending 2004 with 21.5 million customers. It added more than 250,000 net new digital video subscribers, ending 2004 with 8.6 million.

Comcast posted 2004 free cash flow of $1.94 billion, falling short of its forecast of $2 billion. Comcast said the miss was a result of higher-than-expected investments in advanced set-top boxes in the fourth quarter.

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"The results were impressive and nicely balanced between customer growth and financial growth," Oppenheimer & Co. analyst Thomas Eagan said.

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The company said it expected 2005 operating cash flow to rise about 12 percent. Excluding its anticipated investment in digital phone and video-on-demand services this year, the forecast for growth in operating cash flow would have been 14 percent.

Richard Greenfield of Fulcrum Global Partners, said the "guidance was pretty underwhelming," adding that he expected cash flow growth of about 15 percent. "Even this year, they didn't hit their magic $2 billion (free cash flow) number."

Cable operators have faced stiff competition from satellite operators DirecTV Group and EchoStar Communications Corp. for video subscribers in recent quarters.

Those fears subsided moderately in the fourth quarter after Comcast reversed a second-quarter loss of 96,000 video subscribers by the second half of last year. Satellite rivals have also had to spend heavily to attract new customers.

Comcast's fourth-quarter cash flow rose as margins improved to 37.9 percent from 36.3 percent in the year earlier period.

Comcast expects revenue to rise about 10 percent in 2005 and cash flow to jump by 12 percent. Capital expenditure is expected to fall to $3 billion from $3.6 billion last year.

It said it expects to add at least 2.5 million net new "revenue generating units," or RGU, a measure of the number of subscriptions taken by its customers. It logged 2.6 million RGUs in 2004.

Basic video customer growth is expected to be flat in 2005.

Comcast is expected to add 100,000 net new phone customers, as it aggressively rolls out new digital phone services this year, with an expectation that all of its regions will receive coverage by the end of 2006. It will be priced at $39.95 a month.