Comcast Corp.'s stock plunged more than ten percent by midday today after the company announced late yesterday that its cable growth would slow even as its capital costs would rise.
The nation's largest cable company is getting hit by the downturn in the housing industry and by increased competition in basic video services from such companies as Verizon and AT&T, Comcast Chief Financial Office Michael Angelakis said today.
"When we see a little bit of a rise in both churn and bad debt, that indicates there's an economic issue," Angelakis said at a UBS media conference. "We will fight in the streets and do everything we can for retention, but I think the expectation that I have is that we will lose some share in the video side."
Analysts at Kaufman Bros. noted that this was the third time this year that Comcast has cut back expectations. "It is our experience with these cable companies that trends like these take time to develop and are slow to reverse," analyst Todd Mitchell wrote to clients. Mitchell today reversed his recommendation from buy to hold.
The modest-looking declines in guidance produced a vivid response in the market, which beat down the stock by $2.14 to $18.59 by around noon.
Cable stocks have been lanugishing amid fears of more competition from phone companies. The stock had risen above $21 on Monday after the company said it would not compete with Google and bid for 700-megahertz spectrum licenses at a forthcoming FCC auction.
But its momemtum has been downward. Before today, the 52-week range had been from $18.83 to $30.18 a share.
In a press release issued after markets closed yesterday, the company said total cable revenue would rise by 11 percent instead of 12 percent. "Revenue generating units," or or new services sold, would rise by six million instead of the previously announced 6.5 million.
And cable capital costs would rise to $6 billion, five percent more than expected, because of more advanced digital set-top box purchases, the company said.
These changes would reduce free cash flow to 80 percent of 2006 levels, compared to previous guidance of 90 percent.