Why Did Comcast Stock Sink Despite Beating Earnings Estimates?

Comcast Corporation (NASDAQ: CMCSA) saw its shares slump following announcing the results of its second-quarter earnings report. The owner of NBC and Xfinity beat the analyst earnings-per-share (EPS) consensus of $0.92 by 10.29%, reaching an EPS of $1.01, its highest level in four quarters. However, the company's share price sunk despite this positive news.

What were the key results in Comcast's earnings release?

Comcast saw quarterly revenues increase by 5.1% year-over-year (YoY) to $30 billion, while year-to-date revenue increased by 9.5% to reach $61 billion. This was predominantly due to an increase in studio revenue after the release of 'Jurassic World: Dominion', and significant growth from theme parks as COVID-19 restrictions ease and families go on summer holidays.

Consolidated adjusted EBITDA grew by 10.1% over the past year to $9.8 billion due to lower sports programming and production costs and increased theme park demand. CEO Brian Roberts said, "we achieved our highest adjusted EBITDA margin on record even amid a unique and evolving macroeconomic environment."  This, in turn, led to Comcast generating a cash flow of $3.2 billion, or roughly 10.67% of revenue. 

Comcast repurchased 70.8 million of its shares for $3 billion in the second quarter while also paying a dividend of $1.2 billion. This resulted in total quarterly shareholder returns equaling $4.2 billion, compared with just $1.7 billion in the previous year. Total year-to-date returns stand at $8.4 billion, which is over three times larger than shareholder returns over the same period last year. 

Why did Comcast's share price fall?

While these figures look pretty impressive for such a large company, they conceal some important results. For starters, Comcast reported that broadband subscribers were flat at 32.2 million while analysts forecasted an increase of 84,000 customers. The company is experiencing increased competition for its lucrative high-speed broadband division from wireless companies such as T-Mobile (NASDAQ: TMUS), which added 560,000 users this quarter. 

The company also lost 521,000 video users as customers abandon paid TV for cheaper streaming services. However, the company's streaming platform didn't appear to benefit from the switch this quarter. Peacock paid subscribers stayed flat at 13 million after gaining 4 million subscribers in the previous quarter. However, this is better than the loss of subscribers experienced by Netflix (NASDAQ: NFLX). 

The underperformance in the company's most lucrative segments and zero growth in what is supposed to be the main growth driver caused investors to sell off the stock. While the CEO tried to reassure investors that these missed targets were only temporary, it appears many were not convinced, resulting in the stock declining by 10.06% in the day following the report.