Comcast’s rising spending, falling sales hit shares

PHILADELPHIA – In a bad year for cable stocks, Comcast’s fall has been downright ugly.

Shares of the nation’s largest cable operator tumbled to a 20-month low Wednesday after it disclosed that this year’s cable revenue growth and cash flow will come in lower than expected. It said consumers were balking at increasing their spending in a slowing economy and phone companies had stepped up competition.

Meanwhile, Comcast also raised its capital spending to push advanced digital set-top boxes and its digital services.

“Comcast’s announcement today is the worst of all possible worlds,” said Craig Moffett, senior analyst at Sanford Bernstein. “The promise of the cable stocks has always been as growth decelerates so too will capital intensity and free cash flow will rise.”

The stock lost $1.81, or 8.7 percent, to close at $18.92, after earlier trading as low as $18.08. In the past year, Comcast shares have ranged from $18.83 to $30.18.

The news also pressured other cable stocks: Time Warner Cable Inc. slid 4.4 percent to $25.87 while shares of Cablevision Systems Corp. fell 4.2 percent to $25.76.

“We’ve seen a real softness in the business related to a combination of … macroeconomic issues and markets and you’ve seen some competitive intensity,” Michael Angelakis, Comcast’s co-chief financial officer, said Wednesday at the UBS Global Media and Communications Conference in New York. “Competition has increased and we’ve got to respond,” Angelakis said. But “the expectation that I have is over the next couple of years we will lose some share on the video side.”

Comcast has made a decision to spend heavily on advanced set-top boxes. That decision raises spending, but doesn’t necessarily bring in new customers since it tends to be marketed as an upgrade to existing subscribers, said Qaisar Hasan, an analyst at Buckingham Research Group.

Late Tuesday, the Philadelphia-based company said it expects 2007 cable revenue to increase by 11 percent, instead of 12 percent, as its forecast for new subscriptions fell. Revenue generating units – the number of services sold – are expected to increase by 6 million to 57 million instead of by 6.5 million.

Cable operating cash flow growth is projected at 13 percent, down from 14 percent.

Hasan said Comcast had been overly optimistic in its forecasts and he foresees more cuts in guidance next year.

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