Shares of Comcast Corp. swooned 11 percent yesterday, losing $2.60 to close at $21.25, as the company said it had shed video customers and missed expectations.
The nation's largest cable company, facing new competition from phone companies rolling out video services at discounted prices, noted in its third-quarter earnings report that it had lost 65,000 video customers. A year earlier, it had gained 11,000.
But the company's broadest financial measures grew in the quarter ended Sept. 30: revenue by 21 percent and operating cash flow by 20 percent.
Third-quarter revenue rose to $7.8 billion, and cash flow advanced to $2.9 billion.
Net income after special gains rose to $560 million, or 18 cents a share, from $548 million, or 17 cents a share, in the year-ago period.
Even with the erosion of video, the company added about 1.6 million digital-cable, phone, and high-speed-data subscribers.
Stephen Burke, Comcast's chief operating officer, said in a conference call that competition, a soft new-housing market, and a weaker national economy had led to fewer customer additions than the company forecast. "These trends don't change the fundamental growth prospects of our business," he told analysts.
Comcast will tinker with the marketing and packaging of the "triple play," the bundle of video, phone and Internet services the company sells for $100 a month, Burke said.
"There are things we can do to pick up the pace," he said, noting that, with the triple play, "we felt we had an open field for about a year, and then our competition got better."
Verizon Corp. and AT&T Corp. are bundling services like Comcast and selling them to customers in their own versions of a multiservice play. The industry, experts say, is moving toward a time when most customers will get three services - phone, video and Internet - from one company. As phone companies attack Comcast's giant video business, Comcast is pocketing phone business from them.
"This is death by a thousand cuts, because no one number is particularly weak but they paint a picture of decelerating growth," Craig Moffett, an analyst with Sanford C. Bernstein & Co., said of Comcast's third-quarter report.
Comcast had signaled to Wall Street that it would lose video customers, but Moffett said he was expecting a loss of 44,000, not 65,000. He had expected Comcast to gain 684,000 phone customers, but it added 662,000. Comcast was "just a touch light on each number," he said.
Comcast stock is trading at an all-time low as a multiple of cash flow, and Moffett described it as "starkly undervalued."
A weak stock price is a problem in the cable industry. On Wednesday, shareholders rejected a $10.6 billion offer by the Dolan family to take Cablevision Systems Corp., the nation's fifth-largest cable operator, private. Shareholders said the offer was too low. With broader credit problems making billion-dollar deals hard to finance, investors realize there is no "private-equity exit" for cable companies, Moffett said.
As part of its earnings release, Comcast announced a $7 billion share-repurchase plan. When combined with funds from an existing board-approved repurchase plan, the company has $8.2 billion to buy back its stock.
This is expected to appease shareholders who would like the company to reinvest its capital in Comcast stock.
The company's ability to reach 40 million households with video, fast Internet and phone service "provides us with a competitive advantage and will fuel our growth well into the future," Brian L. Roberts, Comcast's chairman and chief executive officer, said in a statement.
The company has 24.2 million cable subscribers, and its wires pass 40 million homes in the United States.
A residential cable provider, Comcast is building a video and high-speed-data business division that sells to companies. Revenue in that new division passed $100 million in the third quarter, the company said.