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FINANCIAL ANALYSIS OF COMCAST AND TIME WARNER CABLE

The document provides a detailed analysis of the media industry, focusing on major players such as Comcast and Time Warner Cable, including their market positions, financial performance, and industry comparisons. It highlights trends, historical mergers, customer demographics, and marketing strategies while presenting financial data, including revenues and net income growth rates. Additionally, it covers significant acquisitions and the competitive landscape of the industry.

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„El Clasico” in media industry vs
Martyna Zdziebło Justyna Bąk Ali EL Shaeri Emma Qi Yang Maria Albarracin Ortiz María Bernabé Match Referees
AGENDA: 1. Quick facts about both companies 2. Industry description 3. Industry majors players global comparison 4. Products 5. Financial Statements 6. Financial Ratios 7. Du Pont Equation 8. Mix Analysis 9. Capital, Research&Development, Advertising Expenditures 10. Correlation Coefficient 11. Altman Z-score 12. Hot news about Media Industry
Media Industry Media Communications Sector Communications CMCSA Market Symbol TWC $136.43 B Market Capitalization $37.66 B 12/ 31/2013 Fiscal Year End 12/ 31/2013 136 000 Number of Employees 51 600 Philadelphia, Pennsylvania at One Comcast Center Headquartes New York City, New York Team Quick Facts 3.6 x 2.6 x
Foundation 1963 Ralph Roberts 1963 built on a strategy of mergers and acquisitions 1990
1963 American Television and Communications (ATC) is founded 1973 • Time Inc. acquires 9% of ATC • Warner Communications forms Warner Cable 1989 1992 2009 Merger of Time Inc. and Warner Communications for $14.9 billion announced, later to become Time Warner Inc; ATC and Warner Cable become Time Warner Cable, a subsidiary of Time Warner TWC separates from Time Warner Inc: Time Warner held a total of 300 million shares of Time Warner Cable common stock Key milestones of TWC
Team Leaders Brian L.Roberts Robert D. Marcus
Brian L.Roberts Robert D. Marcus 55 Age 49 Wharton School, University Pensylvania ‚81 Education Columbia Law School ‚90 CEO, Chairman of the Board, Director, President POSITION CEO, Chairman of the Board, Former COO, Former President 1998 Director 2013 1990 President 2010-2014 2002 CEO 2014 1994 Chairman of the Board 2014 $31 367 254 Total Annual Compensation in 2013 $8 519 154 +7,7 % Compensation changed from 2012 -15,6 % Control of 33 1/3% of the voting rights of the Comcast Corporation Others Leaders Stats 3.7 x
Worldwide economic overview
Worldwide economic overview
Business description Source: NCTA estimated Statistics
Cable Industry to GDP Cable Industry Infrastructure Expenditure Source: BEA.GOV by Industry GDP and Economy.com Industry in which Comcast and TWC operate is very competitive , customer acquisition is the key to future growth, and that is why the industry is also quite capital intensive. Trends are similar!
Industry Price Elasticity Cable Price to CPI Source: NCTA and NCTA (Average Price for Expanded basic) and BLS for CPI statistics
Delivery of telecommunications services Delivery of information to the American consumer Delivery of entertainment to the American consumer Industry Functions
10. Rogers Communications Inc. 1. COMCAST CORP. 2. DIRECTV 3. Time Warner Cable Inc. 4. DISH Network Corp. 5. Charter Communications Inc. 6. Cablevision Systems Corp. 7. EchoStar Corp. 8. Shaw Communications Inc. 9. BCE Inc. In terms of market share!
BUSINESSESHOUSEHOLDS INDUSTRY – CUSTOMERS Cable TV audience: U.S. residents age 12+ who subscribe to either analog or digital cable television service at home. QUICK FACTS 1. More than 60% of Americans subscribe to cable television. 2. Cable television reaches nearly six in 10 adults age 18-49. 3. Cable subscribers closely mirror the age/gender profile of the average American.
The estimated Sales Growth Rate for the future period in the industry is of 3,97%. INDUSTRY - SIZE SALES (Revenues) • $ 202,5 B. MARKET CAPITALIZATION • $ 652,6 B. Total dollar market value of the shares outstanding of all companies in the industry • Growth in Net Income – Last 5 years: 14,16% • Growth in Revenue – Last 5 years: 3,16% 18 FIRMS Sources: www.bloomerg.com , http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histgr.htm l
INDUSTRY - MAJOR PLAYERS In terms of market share!
INDUSTRY - MAJOR PLAYERS
INDUSTRY - MAJOR PLAYERS : COMPARISON COMPANY MARKET SHARE MARKET CAP. COMCAST 26,70% $147,411 DIRECTV 20,50% $43,900 Time Warner Cable 14,20% $42,672 DISH Network Corp. 9% $32,056 Charter Communications Inc. 5,30% $20,810 Cablevision Systems Corp. 4,10% $5,054 EchoStar Corp. 2,10% $4,709 Shaw Communications Inc. 2,10% $10,630 BCE Inc. 1,50% $37,206 Rogers Communications Inc. 1,10% $17,673 Having a high market share does not necessarily have to mean a high market capitalization, and viceversa Notice how BCE Inc’s shares are the fourth most valued shares even though its market share is not very high
C Financial Data 2013 – Comparison with global competitors Market Capitalization Gross Margin % Revenue Net Income $ 27,3 B 2nd among the competitors! $ 22,12 B The biggest Revenue! $ 31,75 B 3rd biggest Revenue! 2nd biggest Revenue! $ 102,56 B X3,8 $ 64,66 B X2,0 91,31% 82,34% 53,25% 2nd biggest %GM! 4th biggest %GM! 1st biggest %GM! -8,97% $ 7,14 B $ 1,95 B $ 4,61 B The biggest NI! 4 th biggest NI!2nd biggest NI! X1,5 The best company among the competitors! Source: www.wikinvest.com/stock/Comcast_(CMCSA)/Data 3rd among the competitors! $ 27,11 B
Financial Data 2013 – Comparison with global competitors Free Cash Flow Total Assets Goodwill&Intangibles Total Liabilities $ 48,27 B $ 158,81 B $ 21,91 B The biggest Assets! 2nd biggest Assets! 3rd biggest Assets! X3,3 $ 115,62 B $ 42,53 B $ 25,99 B The biggest Debt! The biggest Goodwill&I ntangibles! The biggest FCF! 2nd biggest Debt! 3rd biggest Debt! $ 103,79 B $ 29,76 B$ 10,79 B 2nd biggest Goodwill&Intan gibles!3rd biggest Goodwill&Inta ngibles! 3rd biggest FCF! 2nd biggest FCF! $ 5,36 B$ 2,54 B $ 1,33 B X2,1 X2,7 X3,5 Comcast is a leader in MEDIA industry – it has the biggest Revenue, Assets, NI, FCF as well as Market Cap. TWC is the second largest cable company in the U.S. Other strong competitors are Direct TV, Discovery Communications and Virgin Media. Source: www.wikinvest.com/stock/Comcast_(CMCSA)/Data
INDUSTRY - MAJOR ACQUISITIONS OR EVENTS
QUICK FACTS: • Parties: Comcast and AT&T Broadband • July 8, 2001, Comcast made a proposal to merge with AT&T’s Broadband • $72 Billion Transaction • 22 million subscribers • Comcast acquisition of AT&T doubled the size of the company making it in the US larger cable provider • Income growth through leveraging scale with the addition of new services The biggest corporate merger of 2001 Nearly double the size of its next-biggest rival, AOL Time Warner Sales growth 117 % ! Net income growth 1282 %
QUICK FACTS • Parties: AOL and Time Warner • Announced on January 10, 2000 • Oficially filed on February 11, 2000 • $164B deal!!! • Ownership: 50%-50%? AOL HIGHER CAPITALIZATION Even though TW had higher revenues and far more assets!!! 51%GROWTH AND PROFITABILITY FELL 2002: $99B LOSS!!! AOL TW’s value fell $226B to $20B « BIGGEST MISTAKE IN CORPORATE HISTORY »
QUICK FACTS: • Parties: Comcast and GE • $ 30B deal • Important dates:  December 3, 2009  February 12, 2013  March 2013 NBC Universal was owned by GE CC announces the intention to complete the acquisition COMCAST purchases 51% of NBC ACQUISITION COMPLETED
QUICK FACTS: • Parties: Comcast and Time Warner Cable • Announced on February 13, 2014 • $45,2B deal • Complete acquisition • 30 million subscribers • 33% of paid TV customers in the U.S • Currently waiting for permission of the authorities to complete the acquisition. 284,9 million shares Comcast: 22,6 million + TWC: 11,2 million « This transaction is all about increasing competition and creating more customer benefit as a result of gaining additional scale » - David Cohen Comcast Vice-President
QUICK FACTS: • Parties: AT&T and DIRECTV • Announced on May 18, 2014 • $48,5B deal • Aiming to increase AT&T’s market share in the pay TV sector • Access to new markets • Currently waiting for permission of the authorities to complete the acquisition. $48,5 B:  AT&T will pay DIRECTV shareholders $95/share in cash and stock  Including assumed debt, the deal amounts to $67,1B LATIN AMERICA
Product differentiation
Quality of products and services Triple-Service Bundles In terms of service, both Comcast & TWC offer similar packages. Comcast’s choices, however, could be streamlined down to 3 or 4 rather than confusing customers with 5 options. Internet Service Based on nothing else but Netflix ISP rankings. HD DVR & Service Because 90 hours of HD is a lot more than 75 hours! Features Because X1 is way more advanced (if available). Channels Because it’s too hard to do a direct comparison, and a difference of a few channels shouldn’t the tip the scale. Customer Service Based on American Customer Satisfaction Index. Special Offers However, if TWC wants to be more competitive they should give you the HBO and Cinemax for free for six months rather than charge $10 per mo. Prices Because that Comcast two years plan just seems too long and complicated with 3 variations (and 2 price increases) throughout the agreement. TOTAL GOALS Who is scoring a goal? Products-Services Why? 0 0 00 0 0 4 1 « Amazing Goals Comcast !» Source: www.comcast.com and www.timewarnercable.com
Marketing Strategies Strategies Catalogue site Costumer-friendly Dynamic pricing Partnership Personalized advertising Building site Community-focused Dynamic pricing Declaration of quality Investment in others tech Different approach De-emphasize the bundle and became more willing to get a broadband-only customer Focuse on the bundle of video, Internet, and phone Target Group Video, high-speed internet andComcast digital voice customers Professional Youngsters (Source: Marketing Plan Pro), Upper- Medium Income Household, and Baby Boomers Slogan It's Comcastic! ; Xfinity (Comcast) - The future of awesome Enjoy Better « BRAVO COMCAST! More opportunities and less threats than TWC»
Comparative Income Statement – Horizontal Analysis (in $ Millions) 2013 2012 $V %V 2013 2012 $V %V Total Revenue 64 657 62 570 2 087 3,3% 22 120 21 386 734 3,4% Cost of Revenue 19 670 19 929 -259 -1,3% 6 450 6 137 313 5,1% Gross Profit 44 987 42 641 2 346 5,5% 15 670 15 249 421 2,8% Operating Expenses: Research Development Selling General and Administrative 23 553 22 664 889 3,9% 7 690 7 425 265 3,6% Non Recurring 119 115 4 3,5% Others 7 871 7 798 73 0,9% 3 281 3 264 17 0,5% Total Operating Expenses 31 424 30 462 962 3,2% 11 090 10 804 286 2,6% Operating Income or Loss 13 563 12 179 1 384 11,4% 4 580 4 445 135 3,0% Income from Continuing Operations Total Other Income/Expenses Net 212 992 -780 -78,6% 11 497 -486 -97,8% Earnings Before Interest And Taxes 13 689 14 130 -441 -3,1% 4 591 4 942 -351 -7,1% Interest Expense 2 574 2 521 53 2,1% 1 552 1 606 -54 -3,4% Income Before Tax 11 115 11 609 -494 -4,3% 3 039 3 336 -297 -8,9% Income Tax Expense 3 980 3 744 236 6,3% 1 085 1 177 -92 -7,8% Minority Interest -319 -1 662 1 343 -80,8% -4 4 -100,0% Net Income From Continuing Ops 6 730 7 162 -432 -6,0% 1 954 2 155 -201 -9,3% Net Income 6 816 6 203 613 9,9% 1 954 2 155 -201 -9,3% Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 6 816 6 203 613 9,9% 1 954 2 155 -201 -9,3% COMCAST TIME WARNER CABLE $64 657 $62 570 $21 386$22 120 X 2,9X 2,9 3,4%3,3% 9,9% -9,3% As NI rose faster than sales, ROS is going to rise! Total Revenue Net Income Applicable to Common Shares In 2013 Comcast purchased GE’s 49% remaining interest in NBCU (for approximately $16.7 billion). As they own all of NBCU’s NI, they no longer subtract it and that’s why their NI rose so hugely! The biggest $V! Costs have not changed enormusly, so they are not the reason of a huge increase in the NI! Increase in Comcast’s Revenue was primarly due to:  12.4 mln customers subscribed to at least one of HDTV or DVR advanced video services (0,6mln more than in 2012)  Increase in the number of residential High-Speed Internet customers, higher rates from customers receiving higher levels of service  Higher prices and an increase in the volume of advertising units sold  Strong performance of Despicable Me 2 and Fast and Furious 6  Higher guest attendance and increase in per capita spending at the Orlando and Hollywood Theme Parks Increase in TWC’s Operating Costs and Expenses was primarly due to:  contractual rate increases, carriage of new networks  increased headcount and higher compensation costs per employee  Higher Selling, general and administrative expenses - higher marketing costs (which included the impact of increased spending due to temporary blackouts resulting from programming vendor disputes) and increased facilities costs $6 816 $6 203 $1 954 $2 155 Increase in TWC’s Revenue was primarly due to:  Price increases and a greater percentage of subscribers purchasing higher-priced tiers of video service,  Growth in average revenue per subscriber and an increase in high- speed data subscribers  Growth in high-speed data and voice Business Services subscribers, as well as increases in cell tower backhaul and Metro Ethernet revenue  Growth in non-political advertising revenue (primarily associated with advertising inventory sold on behalf of other video distributors (“ad rep agreements”)) X3,5 X2,9 As NI fell while Sales increased, ROS is going to fall! OVERALL: Comcast’s NI looks great (much more better than TWC’s) but it’s mainly due to the decrease in Minority Interest and not the Increase in Sales!
Comparative One Day Income Statement – Vertical Analysis (in $ Millions) 2013 % of sales 2012 % of sales 2013 % of sales 2012 % of sales Total Revenue 180 100,0% 174 100,0% 61 100,0% 59 100,0% Cost of Revenue 55 30,4% 55 31,9% 18 29,2% 17 28,7% Gross Profit 125 69,6% 118 68,1% 44 70,8% 42 71,3% Operating Expenses: Research Development - - - - - - - - Selling General and Administrative 65 36,4% 63 36,2% 21 34,8% 21 34,7% Non Recurring - - - - 0,3 0,5% 0 0,5% Others 22 12,2% 22 12,5% 9 14,8% 9 15,3% Total Operating Expenses 87 48,6% 85 48,7% 31 50,1% 30 50,5% Operating Income or Loss 38 21,0% 34 19,5% 13 20,7% 12 20,8% Income from Continuing Operations Total Other Income/Expenses Net 1 0,3% 3 1,6% 0,03 0,0% 1 2,3% Earnings Before Interest And Taxes 38 21,2% 39 22,6% 13 20,8% 14 23,1% Interest Expense 7 4,0% 7 4,0% 4 7,0% 4 7,5% Income Before Tax 31 17,2% 32 18,6% 8 13,7% 9 15,6% Income Tax Expense 11 6,2% 10 6,0% 3 4,9% 3 5,5% Minority Interest -1 -0,5% -5 -2,7% 0 0,0% 0 0,0% Net Income From Continuing Ops 19 10,4% 20 11,4% 5 8,8% 6 10,1% Net Income 19 10,5% 17 9,9% 5 8,8% 6 10,1% Preferred Stock And Other Adjustments - - - - - - - - Net Income Applicable To Common Shares 19 10,5% 17 9,9% 5 8,8% 6 10,1% COMCAST TIME WARNER CABLE 29,2% 70,8% 28,7% 71,3% 31,9% 68,1% 8,8% 30,4% 69,6% 10,5% 48,6% 50,1% 20,7%21,0% 19 5 X 3,8 +1,2% TWC’s GM% was higher! +3,2% Comcast increased its GM%! -1,5% +1,5% +0,5% -0,5% -1,7% Comcast’s ROS is higher! +1,5% -0,3% Comcast’s Cost of Revenue as % of Total Revenue was higher than TWC’s! INCOME STATEMENT: FOR COMCAST!!! TWC’s GM% decreased!
Quarterly Revenue and Income +1,6% 25,6% 24,0% +2,1% +12,4% +16,5%  Revenue and NI were higher in 2Q&3Q of each year – due to increases in consumer advertising in the spring and in the period leading up to and including the holiday season  3Q12's Revenue and NI were boosted by London Olympics  Revenue and NI benefit in even-numbered years from advertising related to candidates running for political office  TWC’s quarterly Revenues were more steady than Comcast’s,  3Q2012’s NI was boosted by London Olympics  3Q2012 benefited from the strong results of the July 2012 movie "The Dark Knight Rises” (cost $250 million, brought in nearly $1.1 billion globally)
(in $Millions) 2013 2013(%) 2012 2012(%) V$ ( V%) 2013 2013(%) 2012 2012(%) V$ (V%) ASSETS Cash And Equivalents 1718 1% 10951 7% -9233 16% 525 1% 3304 7% -2779 16% Short-Term Investments 3573 2% 1464 1% 2109 244% 0 - 150 0% -150 0% Accounts Receivable 6376 4% 5521 3% 855 115% 954 2% 883 2% 71 108% OtherCurrent Assets 2408 2% 2055 1% 353 117% 665 1% 540 1% 125 123% TOTALCURRENTASSETS 14075 9% 19991 12% -5916 70% 2144 4% 4877 10% -2733 44% Property Plant&Equipmnet, Net 29840 19% 27232 17% 2608 110% 14255 30% 14004 28% 251 102% Goodwill 27098 17% 26985 16% 113 100% 3196 7% 2889 6% 307 111% Long-Term Investments 3770 2% 6325 4% -2555 60% 183 0% 382 1% -199 48% OtherIntangibles 76693 48% 77204 47% -511 99% 27365 57% 27390 55% -25 100% OtherLong-Term Assets 7337 5% 7234 4% 103 101% 1130 2% 267 1% 863 423% TOTALASSETS 158813 100% 164971 100% -6158 96% 48273 100% 49809 100% -1536 97% Comparative Balance Sheet: Assets 3.3 x 3.3 x 4 % 3 % 84 % 84 % The major type of asset , almost 50 % of Total Assets in both companies The assets under this category include mainly: • Franchise rights; • Trade names; • FCC license; • Patents and other technology rights; • Software; • Customer relationship; • Cable franchise renewal costs and contractual operating rights and Other agreements and rights Franchise rights The assets under this category include mainly: • Cable franchise rights (the major part of it) • Customer relationships • Cable franchise renewals access rights Intangible assets consists in 77 % of Franchise rights. They come from agreements with state and local authorities that allow access to homes and businesses in cable service areas that were acquired in business combination. «Strong barrier to entry to would-be competitor ! » To sum up, in both companies inangible assets in total assets are huge and it is definitely an area that the firms need to watch for in the future. Why? While most of them are indefinite-lived assets that can not be lost due to amortization, there is the possibility that the values may be written down if some of the acquisitions do not work out in the future, which could be prove problematic. In 2013 year Comcast reported $29.8 B in PP&E which was 10 % more than in previous year. The grow was mainly due to acquisitions of real estate properties which resulted in increase of $2,2 billion PPE. In 2013 TWC reported $14,2 B of PP&E which increased only 2 % comparing to previous year.To sum up, we can say that Comcast was expanded on more. In 2013 Comcast reported $27.1B of goodwill which accounts for 17% of assets. This is inline with the $26.98B that it reported in goodwill at the end of 2012. BUT generally, the big amount of goodwill in Comcast's assets is caused mainly by big acquisitions performed in previous years (the $10.9B in goodwill that was acquired in 2011 with the 51% stake in NBC Universal being purchased for a total consideration of $24.1B. Also contributing was the $982M in goodwill that was acquired when the company purchased the remaining 50% stake in Universal Orlando). To sum up, goodwill percentages of total assets in both companies is not very excessive but in Comcast is much higher than TWC, so this is also an area that we need to watch for Comcast. Goodwill has an accounting value, it has no economic value. if the acquisition does produce the value that was originally expected, then some of that goodwill might come off of the balance sheet, which could, in turn lead to the stock going down. TWC in 2013 reported $3,2 B in goodwill which accounts 7 % of asset. It is similar to 2012 year. In 2013 and 2012 Comcast's receivables, equal to 10 % and 9% of its revenue, respectively. TWC's receivables, equal to 4 % of its revenue in both years. In case of both companies receivables stated low percentage of sales so it is seems to be anything to worry about here for either of these two companies. In both companies Cash And Equivalents generally stated a low percentage of sales but this type of assets declined the most in both companies. In 2013 Comcast reported only $5.3 B in cash and equivalents and short-term investment. Cash decreased 84 %. In 2013 Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal. The total consideration for these transactions consisted of $11.4 billion of cash on hand. In 2013 TWC reported only $525 M in cash and equivalents and short-term investment. Cash decreased 84 %. In 201 TWC completed its acquisition of DukeNet for $572 milion in cash.
(in $ Millions) 2013 2013 (%) 2012 2012 (%) V$ V (%) 2013 2013 (%) 2012 2012 (%) V$ V (%) LIABILITIES & EQUITY Accounts Payable 5 528 3% 5 324 3% 204 104% 565 1% 647 1% -82 87% Accrued Expenses 7 967 5% 5 931 4% 2 036 134% 1 837 4% 1 805 4% 32 102% Current Portion Of Long-Term Debt/Capital Lease 3 280 2% 2 376 1% 904 138% 1 767 4% 1 818 4% -51 97% Other Current Liabilities 1 239 1% 2 232 1% -993 56% 869 2% 872 2% -3 100% Unearned Revenue, Current 898 1% 851 1% 47 106% 188 0% 183 0% 5 103% TOTAL CURRENT LIABILITIES 18 912 12% 16 714 10% 2 198 113% 5 226 11% 5 325 11% -99 98% Long-Term Debt 44 567 28% 38 082 23% 6 485 117% 23 335 48% 25 172 51% -1 837 93% Deferred Tax Liability Non-Current 31 935 20% 30 110 18% 1 825 106% 12 098 25% 11 280 23% 818 107% Other Non-Current Liabilities 11 384 7% 13 271 8% -1 887 86% 667 1% 749 2% -82 89% TOTAL LIABILITIES 106 798 67% 98 177 60% 8 621 109% 41 326 86% 42 526 85% -1 200 97% Minority Interest 1 321 1% 17 438 11% -16 117 8% 4 0% 4 0% 0 100% Common Stock 30 0% 31 0% -1 97% 3 0% 3 0% 0 100% Additional Paid In Capital 38 890 24% 40 547 25% -1 657 96% 6 951 14% 7 576 15% -625 92% Retained Earnings 19 235 12% 16 280 10% 2 955 118% -55 0% 363 1% -418 -15% Treasury Stock -7 517 -5% -7 517 -5% 0 100% 0 0% 0 0% 0 - Comprehensive Income And Other 56 0% 15 0% 41 373% 44 0% -663 -1% 707 -7% TOTAL EQUITY 50 694 32% 49 356 30% 1 338 103% 6 943 14% 7 279 15% -336 95% TOTAL LIABILITIES AND EQUITY 158 813 100% 164 971 100% -6 158 96% 48 273 100% 49 809 100% -1 536 97% Comparative Balance Sheet: Liabilities&Equity 60 % 9 % 67 % 2,7 x 85 %86 % current assets decreased 30 % while the current liabilities increased by 13 % Comcast was capable to meet only 74 % of its short term obligations in the recent year while in previous year its current assets were 1,2 times bigger than current liabilities. Current assets decreased 56 % while the current liabilities declined by 2 % TWC was able to meet only 41 % of short term obligatoins the recent year while in 2012 92 % In both years and in both companies their assets were financed mainly through debt. While analyzing the debt structure of the company, it is revealed that their debt structures are heavily based on long term liabilities as compared to short term. In Comcast current liabilities stated 18% and 17 % of Total Liabilities respectively and in TWC in both years 13 %. 113 % 117 % In Comcast the proportion of long term debt is also increasing with a greater percentage as compared to current liabilities which represents that company is heavily depend on long term debt which is 28% of total assets. TWC tried to reduce the proportion of long- term debt in financing assets (declined by 7 % ) but it still was almost 50 % of total assets. Its huge. Comcast reported $19,24B of retained earnings on its most recent balance sheet, while TWC had a retained earnings deficit of $55 M on its balance sheet Going back to the end of 2009, Comcast had retained earnings of $10.0B. So, over the last years, Comcast grew its retained earnings at a cumulative rate of 92,4 %, which is impressive.Comcast was growing its net worth. The more earnings retained, the faster it grows and increases growth rate for future earnings. This deficit is due mostly to the aggressive share buyback policies being pursued by the management at TWC. For the year ended December 31, 2013, the Company repurchased 24.0 million shares of TWC common stock for $2.526 billion, including 0.4 million shares repurchased for $51 million that settled in January 2014. . Minority Interest fell 82 %. In 2013 Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal for approximately $16.7 billion.
Income Statement 5 Year Growth Rate 2010 2011 2012 2013 2014 Revenue 18.868 19.675 21.386 22.120 22.812 Gross Marg. 9.927 10.537 9.942 10.342 5.294 Net income. 1.308 1.665 2.155 1.954 2.031 2010 2011 2012 2013 2014 Revenue 37.937 55.842 62.570 64.657 68.775 Gross Marg. 22.687 35.084 42.641 44.987 47.863 Net income. 3.635 4.160 6.203 6.816 8.380
Balance Sheet 5 Year Growth Rate 6.8 % -18,24% A2010 A2011 A2012 A2013 A2014 45.822 48.276 49.809 48.273 48.501 36.612 40.746 42.530 41.330 40.488 9.210 7.530 7.279 6.943 8.013 BALANCE SHEET DATA Total Assets Total Debt including current portion Shareholders´equity 2010 2011 2012 2013 2014 118.534 157.818 164.971 158.813 159.339 74.180 110.544 115.615 108.119 106.628 44.354 47.274 49.356 50.694 52.721 BALANCE SHEET DATA Total Assets Total Debt including current portion Comcast Shareholders´equity
Comparative Cash Flow COMCAST TIME WARNER CABLE (in $ Millions) 2013 2013 Operating Acitivities 14 608 4 864 Net income 6 816 1 954 Depreciation and amortization 7 871 3 281 Change in Accounts Receivable -855 -71 Change in Other Current Assets -353 -125 Change in other LT Assets -103 -863 Change in Accounts Payable 204 -82 Change in Accrued Expenses 2 036 32 Change in other Current Liabilities -993 -3 Change in Unearned Revenue, C 47 5 Change in Deferred Tax Liability NC 1 825 818 Change in Other NC Liabilities -1 887 -82 Investing Activities -9 594 -2 758 Capital expenditures -10 479 -3 532 Change in STI -2 109 150 Change in Goodwill -113 -307 Change in LTI 2 555 199 Change in Other Intangibles 511 25 Change in Comprehensive Income 41 707 Financial Activities -14 247 -4 885 Stock issued -1 0 Dividends paid -3 861 -2 372 Change in Current Portion Of LT Debt 904 -51 LT Debt 6 485 -1 837 Minority Interest -16 117 0 Change in Additional Paid In Capital -1 657 -625 Increase (decrease) in cash and cash equivalents -9 233 -2 779 Operating activities 14 608 4 864 Net Income Investing Activities Financial Activities -2 779-9 233 Increase/Decrease in cash and cash equivalents Depreciation and Amortization Capital expenditures 6 816 7 871 3 281 -9 594 -14 247 -10 479 -2 758 -3 532 1 954 -4 885 -2737Dividends paid -3 861 X3,0 46,7% of OCF 53,9% of OCF 40,2% of OCF 67,5% of OCF X3,5 X2,9 71,7% of OCF 72,6% of OCF 26,4% of OCF 56,3% of OCF Change in LT Debt Change in Current portion of LT Debt 904 6485 -51 -1837 Comcast took out huge debt! TWC is repaying its debt, but debt is still huge! Minority Interest -625-1 657 X3,3 Comcast acquired GE’s 49% remaining common equity interest in NBCU for approximately $16.7 billion. TWC completed its acquisition of DukeNet for $572 million in cash (including the repayment of debt), net of cash acquired and capital leases assumed. BOTH COMPANIES HAVE CASH OUTFLOW!!!
5 year Cash Flow 1963X2,1 X2,5 X2,7 X2,5 X2,7 Comcast’s OCF was more than 2 times bigger than TWC’s in each year. X2,0 X3,5 X0,4 X2,7 X2,1 Comcast’s Investing CF was 0,4 – 3,5 times bigger than TWC’s. X2,9X2,7X1X221,5X0,4 Comcast’s Financing CF was 0,4 – 221,5 times bigger than TWC’s That’s why Comcast can buy TWC! -5 056
5 year Operating Cash Flow – top items 1963 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Other working capital 3. Amort. of debt discount 1. Amort. of debt discount 2. Other working capital 3. Net income 1. Other working capital 2. Amort. of debt discount 3. Depn& amort 1. Net income 2. Depn& amort 3. Other working capital 1. Net income 2. Depn& amort 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Other non-cash items Depreciation&Amortization, NI and other working capital were the biggest drivers of Comcast’s OCF Depreciation&Amortization, NI and deferred income taxes were the biggest drivers of TWC’s OCF
5 year Investing Cash Flow - top items 1963 1. Investments in PPE 2. Other inv. activities 3. Purchases of intangibles 1. Investments in PPE 2. Acquisitions, net 3. Other inv. activities 1. Investments in PPE 2. Purchases of investments 3. Other inv. activities 1. Investments in PPE 2. Purchases of intangibles 3. Other inv. activities 1. Investments in PPE 2. Other inv. activities 3. Acquisitions, net 1. Investments in PPE 2. Other inv. Activities 3. - 1. Investments in PPE 2. Acquisitions, net 3. Sales of intangibles 1. Investments in PPE 2. Other inv. activities 3. Purchases of investments 1. Investments in PPE 2. Other inv. Activities 3. - 1. Investments in PPE 2. Sales/Maturities of investments 3. Purchases of investments Investments in PPE and other investing activities were the biggest drivers of both companies’ ICF 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 96% 50% 447% 80% 76% 102% 83% 93% 93% 101% Comcast TWC Investments in PPE as % of ICF Both companies were spending more than 50% of their ICF in each year on themselves (CAPEX)!
5 year Financing Cash Flow - top items 1. Debt issued 2. Common stock repurchased 3. Debt repayment 1. Debt issued 2. Common stock repurchased 3. Debt repayment 1. Common stock repurchased 2. Debt issued 3. Debt repayment 1. Debt repayment 2. Common stock repurchased 3. Dividend paid 1. Other financing activities 2. Debt issued 3. Debt repayment 1. Debt issued 2. Other financing activities 3. Dividend paid 1. Debt repayment 2. Debt issued 3. Common stock repurchased 1. Debt repayment 2. Dividend paid 3. Debt issued 1. Debt issued 2. Common stock repurchased 3. Dividend paid Debt issued, common stock repurchased, debt repayment and dividend paid were the biggest drivers of both companies’ FCF 2013 -5 056 1. Common stock repurchased 2. Debt repayment 3. Dividend paid 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 1461% 59% 100% 24% 112% 302% 11782% 63% 65% 54% Comcast TWC Dividends paid + Common Stock Repurchased as % of FCF The money which was returned to shareholders represented huge share of both companies’ FCF ! Overall: As Comcast has huge CAPEX ,its Depn&Amort is also huge. Hovewer Comcast does not have enough cash to finance it, so it is taking out huge debt (but total debt is decreasing!) Overall: TWC’s CAPEX and Depn&Amort are also huge, but since 2012 TWC has been repaying more debt than issuing. However its debt to asset ratio is still enormous (86% in 2013). In 2014 its Operating inflow was high enough to cover financial and investing outflows.
Revenues by segments in 2007-2013 %ofCableTVrevenuesin TotalReneue Drops are consistent with market trends, the cable TV industry has seen declines in video subscribers over the last several years (customer complaint about rising cable subscription prices what is caused by rising programming costs) second major component In 2011 year the situations changed, revenues from NBCU, Comcast Content &Others grew significantly and were second main part of Comcast’s total revenues . It happened because in 2011 year Comcast acquired 51% of NBCUniversal Holdings and a 49% interest in the Comcast Content Business. BUT.. revenues generated from Broadband still remained important « STOP !!!» second major component Revenues from Broadband had nearly doubled from $6.4 billion in 2007 to $12 billion in 2013 and the segment accounted for close to 20% to the company’s overall revenues. Increased in Broadband’s revenues of COMCAST and TWC are consistent with market trends, The increasing need for speed and connectivity is driving broadband growth in the U.S %ofBroadbandrevenuesin TotalReneue Comcast's revenues from other segments were less important in overall revenues , but they were growing constantly although the changes were not spectacular . TWC's revenues from other segments were less important in overall revenues , but they were growing constantly although the changes were not spectacular . Source: www.trefis.com
EBIDTA by segments in 2007-2013 %oftotalEBIDTAgeneretaedby CableTVsegmentinbothcompanies wasfalling(like%ofRevenue) Growth caused by the same reason as growth in revenues Source: www.trefis.com
Free Cash Flows by segments in 2007-2013 In Comcast and TWC Cable TV segment generated the most of the company’s free cash flow in every year , however this percentage was falling year by year because both companies were increasing their capital expenditures . Source: www.trefis.com
5307 5714 6,596 0 5000 10000 2011 2012 2013 Total capital expenditures 2011-2013 2937 3095 3,198 2800 2900 3000 3100 3200 3300 2011 2012 2013 Total capital expenditures 2011-2013 2 x 22,120 64,657 3,198 6,596 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 CAPEX in Total Revenue in 2013 Total Revenue CAPEX Capital expenditures in 2011-2013 10% of sales 14,5% of sales Category 20122013/2012 2013 20122013/2012 2013 CFtoCapexratio* 1,818 59% 1,07 1,543 124% 1,910 Capextosalesratio 9% 112% 10% 14,5% 100% 14,5% Cash flow to Capex Ratio of TWC also increased from previous year so it might indicate that the TWC is in a position to grow and growth is generally what increases share price and shareholder wealth. TWC takes the maintenance and expansion of its capital infrastructure seriously.
Capital Expenditures 5 year Growth Rate 2010 2011 2012 2013 2014 Gross PPE 28.217 30.920 33.272 35.619 38.552 Acc depr. -14.344 -17.015 -18.530 -20.563 -22.562 Net PPE 13.873 13.905 14.742 15.056 15.990 2010 2011 2012 2013 2014 Gross PPE 56.020 64.087 66.657 72.414 76.363 Acc depr. -32.505 -36.528 -39.425 -42.574 -45.410 Net PPE 23.515 27.559 27.232 29.840 30.953
2013 2012 Change LIQUIDITY Current Ratio 0,74 1,20 worse Quick Ratio 0,74 1,20 worse TURNOVER Receivable Turnover 10,14 11,33 worse Total Asset Turnover 0,41 0,38 better PROFITABILITY Return on Sales 10,5% 9,9% better Return on Assets 4,3% 3,8% better Return on Equity 13,1% 9,3% better Gross Margin 69,6% 68,1% better LEVERAGE Debt to Assets 67% 60% worse Debt to Equity 2,05 1,47 worse TIE (times) 5,32 5,60 worse Equity Multiplier 3,05 2,47 worse CASH MANAGEMENT (in days) Days Sales Outstanding 36 32 worse Account Payable Days 101 96 better Cash Conversion Cycle -66 -64 better MARKET VALUE Earnings Per Share 2,60 2,32 better Dividends per Share 0,78 0,65 better Dividend Yield 1,50% 1,74% constant Dividend Payout 30,00% 28,02% better Price to Earnings 19,99 16,10 better Price to Book Value 2,69 2,03 better Market Capitalization $136 B $100 B better Name of Ratio COMCAST Individual Ratios in 2012-2013 40 % up As concerned with the short term solvency of Comcast, Current ratio of the company is deteriorated significantly (38 %) from 2012 to 2013, its below 1, it means that he company cannot pay its current liabilities and should looked at this with extreme caution. Quick ratio is the same because Comcast does not have inventory. Debt to equity ratio of Comcast in 2012 was high and in 2013 increased strongly, about 40 % it is not a good indication, it represented that Comcast was focused on debt financing . As well as debt to asset ratio of Comcast's went up. Financial leverage based on its solvency ratios appears quite high. Debt exceeds equity by more than 2 times, while almost 70 % of assets have been financed by debt. 72 %f of non- current assets consists of intangible assets (such as goodwill and franchise rights and others) As a result, In 2013 the ratio of debt to tangible assets – calculated as Total Liabilities/Tangible assets– is 261 %, which means that all of tangible assets (plant and equipment, inventories, etc.) have been financed by borrowing. Growing Equity Multiplier and decreasing TIE ratios (probably due to increase in interest expenses due to the firm’s focus on debt financing) confirmed that Comcast was focusing on debt financing and had a high amount of leverage. Generally Comcast had in both years high negative CCC, it is great case and it shows that the company has a big power in the industry. Overall its profitability is good, all ratios increased. Generally all ratios increased, market capitalization too, Comcast can be considered as a good investment.
2013 2012 Change LIQUIDITY Current Ratio 0,41 0,92 worse Quick Ratio 0,41 0,92 worse TURNOVER Receivable Turnover 23,19 24,22 worse Total Asset Turnover 0,46 0,31 better PROFITABILITY Return on Sales 8,8% 10,1% worse Return on Assets 4,0% 4,3% worse Return on Equity 28,1% 29,6% worse Gross Margin 70,8% 71,3% worse LEVERAGE Debt to Assets 86% 85% worse Debt to Equity 5,95 5,84 worse TIE (times) 2,96 2,96 constant Equity Multiplier 6,95 6,84 worse CASH MANAGEMENT (in days) Days Sales Outstanding 16 15 worse Account Payable Days 32 38 worse Cash Conversion Cycle -16 -23 worse MARKET VALUE Earnings Per Share 6,76 6,97 worse Dividends per Share 2,60 2,24 better Dividend Yield 1,92% 2,30% constant Dividend Payout 38,46% 32,14% better Price to Earnings 20,04 13,94 better Price to Book Value 5,62 4,11 better Market Capitalization $39 B $30 B better Name of Ratio TWC Individual Ratios in 2012-2013 As concerned with the short term solvency of TWC, Current ratio of the company is declined substantialy (55 %) from 2012 to 2013, it is very low only 0,41, it indicates strong lack of liquidity and a risk of bankruptcy. Quick ratio is the same because TWC does not have inventory. Debt to equity ratio of TWC’s in 2012 was very high and in 2013 increased slightly. It means that TWC was highly leveraged and represented a high risk for investors. Debt to asset ratio of TWC was also very high, TWC financed in 2013 86 % of it's assets with debt! It's a lot. We have to note that 66 %f of non- current assets consists of intangible assets (such as goodwill and franchise rights and others) As a result, the ratio of debt to tangible assets – calculated as Total Liabilities/Tangible assets– is 2615%, which means that all of tangible assets (plant and equipment, inventories, etc.) have been financed by borrowing! Generally TWC had in both years also negative CCC, it's good, the company could invest cash received from customers before paying suppliers, however, the situations worsened in recent year. Generally all ratios increased, except EPS. EPS decreased but still was quite high because EPS for full year of 2013 benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program. Since inception of the share repurchase program in November 2010 through December 31, 2013, TWC has repurchased over 25% of its outstanding shares for $7.5 billion at an average price of $82.51 per share Price to earnings rose strongly , the market was willing pay for TWC’s earnings- more. Each company would have to pay more to acquire TWC.
COMCAST TWC Comcast 2013 2013 TWC LIQUIDITY 2013 Current Ratio 0,74 0,41 better Quick Ratio 0,74 0,41 better TURNOVER Receivable Turnover 10,14 23,19 worse Total Asset Turnover 0,41 0,46 worse PROFITABILITY Return on Sales 10,5% 8,8% better Return on Assets 4,3% 4,0% better Return on Equity 13,1% 28,1% worse Gross Margin 69,6% 70,8% worse LEVERAGE Debt to Assets 67% 86% better Debt to Equity 2,05 5,95 better TIE (times) 5,32 2,96 better Equity Multiplier 3,05 6,95 better CASH MANAGEMENT (in days) Days Sales Outstanding 35,50 15,53 worse Account Payable Days 101,17 31,53 better Cash Conversion Cycle -65,67 -16,01 better MARKET VALUE Earnings Per Share 2,60 6,76 worse Dividends per Share 0,78 2,60 worse Dividend Yield 2% 2% constant Dividend Payout 30% 38% worse Price to Earnings 19,99 20,04 worse Price to Book Value 2,69 5,62 worse Market Capitalization 136 421 39 024 worse Name of Ratio Who is scoring a goal? Comparative Ratios 2013 4 x 2x 2,6x Current ratio of Comcast was below 1, it idicates a weaking liquidity position, but the situation is better than TWCs which had a strong lack of liquidity. Score for Comcast. Generally Comcast's all leverage ratios looked better than TWC, which is much more leverage , TWC used more debt to finance its assets, higher financial risk. Scores for Comcast again. Comcast is scoring again. It had 4 times more days than TWC to invest it before it had to pay its suppliers. Comcast has a BIG market power in the industry. Genarally, their profitability was quite similar, Comcast had slightly better ROS and ROA, but the main difference was in ROE. TWC had 2 times higher ROE. Why? Du Pont equitation will give the answer. Generally, Comcast comparing to TWC looked worse, but have much more bigger market capitalization. TWC had 2,6 times bigger EPS and it was good quality EPS, because operating cash flow per share (operating cash flow divided by the number of shares used to calculate EPS) was 16,9 and it was greater than reported EPS Score for TWC.
Industry Comparison :Ratio data TTM as of 12/31/2014 www.bloomberg.com Comcast has ROA below industry average while TWC higher than industry average Comcast and TWC have Return on Capital higher than industry average.Comcast and TWC have Return on Eguity below industry average but TWC return on equity is much more higer than Comcast's. Current ratios are below industry average, both companies should improve their liquidity position. Comcast below industry average, TWC higher level of leverage than industry average. Comcast below industry average, TWC higher than industry average.
Industry Comparison :Ratio data TTM as of 12/31/2014 http://www.bloomberg.com Revenues of both companies grew faster than industry market, but Comcast's revenue increased faster. Capital expenditures are below industry but TWC is investing more to make grower revenues in future.
Du Pont Equation Du Pont analysis tells us that ROE is affected by three things: 1)Financial leverage, which is measured by the equity multiplier (EM) 2)Assets Efficiency which is measured by total asset turnover (TAT) 3)Profitability, which is measured by profit margin( ROS)
Du Pont Equation (in $ Millions) 2013 2012 2013 2012 Net Income 6 816 6 203 1 954 2 155 Sales 64 657 62 570 22 120 21 386 Total Assets 158 813 164 971 48 273 49 809 Owners Equity 50 694 49 356 6 943 7 279 EM=TA/OE 3,13 3,34 6,95 6,84 TAT=Sales/TA 0,41 0,38 0,46 0,43 ROS=NI/Sales 10,54% 9,91% 8,83% 10,08% ROE=EMxTATxROS 13,45% 12,57% 28,14% 29,61% TWCComcast Du Pont Equation 2.3 x 2.1 x ROS is the major component of ratio. It is also similar in 2013, although Comcasts was higher. In 2013 for every $100 of Sales, Comcast generated $10,54 of Net Income, and TWC generated $8,83 of Net Income. TWC's ROE comparing to Comcast’s looked amazing but the key difference follows straight from leverage, TWC was 2,3 times more leverage. If a company is taking on way too much debt that is not good- increase in lease and debt financing leads towards an increase in interest expenses and reduced profits. In 2013 for every $1 of Total Equity, Comcast owned $ 3.13 of Assets while TWC owned $6.95 of in Total Assets! Its 2,3 times more. Higher Ratio > the more debt is used to finance assets > Higher Risk ! In 2013 for every $1 of Assets, Comcast generated $0.41 in Revenue, and TWC generated $0.46 in Revenue. It's not a big difference, probably both companies had similar pricing strategy.
Change % Better/Worse Change % Better/Worse EM=TA/OE -6% better 2% worse TAT=Sales/TA 7% better 7% better ROS=NI/Sales 6% better -12% worse ROE=EMxTATxROS 7% better -5% worse 100% BETTER 25% BETTER/75% WORSE Let's talkaboutROE. ROE component’s variation 2013/2012 Comcast’s ROE increased. Comcast improved its assets utilization and profitability of sales. It was good. In 2013 TWC was leverage more but it did not lead to higher ROE because profit margin fell (12 %) and ROE declined too. It can cause some concern.
Leasing Expenditures Year 1 Years 2-3 Years 4-5 More than 5 Total Year 1 Years 2-3 Years 4-5 More than 5 Total Capital lease obligations 7 11 5 14 37 49 Operating lease obligations 385 628 458 673 2 144 149 272 191 300 912 Total contractual obligations 15 773 18 794 16 796 55 679 107 042 9 089 13 518 13 980 47 551 84 138 Contractual obligations outstanding as of December 31, 2013 by the period in which the payments are due no data in the notes COMCAST TWC (in $ Millions) Capital lease obligations Operating lease obl. Total contractual obl. 37 2 144 107 042 49 912 84 138 Similar structure of Operating leases – operating leases due by more than 5 years have the biggest share COMCAST TWC Total Capital lease obligations as % of Total contractual obligations 0,03% 0,06% Total Operating lease obligations as % of Total contractual obligations 2,00% 1,08% Total lease obligations as % of Total contractual obligations 2,04% 1,14% Lease obligations as % of Contractual obligationsObligations outstanding as of December 31, 2013 0,03% 2,00% 2,04% 0,06% 1,08% 1,14% Overall, Comcast finances more of its operations with leasing than TWC. Both companies prefer operating than capital leasing. TWC uses Capital leasing more often than Comcast. X2,35 X1,27 X0,75 Comcast has much more operating leases, but less capital leases than TWC!
Advertising Expenditures Industry * (in $millions) 2011 2012 2013 2012/2011 2013/2012 2011 2012 2013 2012/2011 2013/2012 2013 AdvertisingExpenditures 4231 4831 4969 14% 3% 635 653 676 2,8% 3,5% 5,3% Advertisingas a% of Sales 8% 8% 3% 3% 1,9% Advertisingas a% ofMargin 11% 12% 3% 4% 4,6% COMCAST TWC5 % more Both companies spend much more than industry average percentage
Research&Development Expenditures 99% 1% R&D employees in 2013 Total number of employees R&B employess 61 % 39 % R&D employees in 2013 Total number of employees R&B employess (in$millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 R&DExpenditures 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BUY TWC!! Comcast's and TWC's investments in R&D have been almost invisible. Neither company spent enough on it lasts years to even disclose the figure in its annual reports Comcast doesn't want to make that sort of investment in innovation as GOOGLE!!!
Segments Sales ∆ in $M ROS ∆ in $ M TOTAL in $ M Sales ∆/Total ROS ∆/Total SALES V% ROS V% Cable comunication 577 384 961 60% 40% 5,64% 0,97% Cable Network 143 56 199 72% 28% 5,43% 0,65% Broadcast Television -37 23 -14 268% -168% -13,17% 0,29% Filmed Entertainment 25 380 405 6% 94% 5,68% 7,36% Theme Parks 652 -28 623 105% -5% 7,19% -1,35% Total 471 1099 1570 30% 70% 3,24% 1,72% (Revenue in the 2nd year – Revenue in the 1st year) x (operating margin from 1sr year/ revenue from the 1st year) ROS V% x Revenue in the 1st year ($41836-$39604) x ($10811/$41836) (25,8%-24,9%) x ($39604) Segments Sales∆in$M ROS ∆in$M TOTALin$M Sales∆/Total ROS∆/Total SALESV% ROSV% Cable comunication 152 -17 135 113% -13% 3,43% -0,1% SALES MIX – Cable Communication
ROS increased only by 0,97%, but its $ impact was huge! SALES MIX – Cable Communication
DOL, DFL and DTL 4,5% of sales Formulas: DOL -0,94 -2,07 DFL -3,87 0,42 DTL 3,62 -0,88
STRONG BUY BUY HOLD SELL STRONG SELL 11 x 1 = 11 11 x 2 = 22 4 x 3 = 12 0 x 4 = 0 0 x 5 = 0 26 45 Current Price: $57,94 45/26 = 1,73 11 x 1 = 11 11 x 2 = 22 3 x 3 = 9 0 x 4 = 0 0 x 5 = 0 25 42 Three-Month-Ago Price: $52,91 42/25 = 1,68 STRONG BUY BUY HOLD SELL STRONG SELL 4 x 1 = 4 6 x 2 = 12 12 x 3 = 36 1 x 4 = 4 0 x 5 = 0 23 56 Current Price: $154,81 56/23 = 2,43 4 x 1 = 4 5 x 2 = 10 12 x 3 = 36 0 x 4 = 0 0 x 5 = 0 21 50 Three-Month-Ago Price: $153,27 50/21 = 2,38
P/E RATIO Current Price $57,94 P/E 18,11 P/E Forward 15,79 EPS 2014 = 3,20 EPS 2015 = 3,67 G% = 14,6% Current Price $154,81 P/E 21,59 P/E Forward 17,47 EPS 2014 = 7,17 EPS 2015 = 8,86 G% = 24%
What will happen to the stock price next year? Actual Price: $57,94 Actual Price: $154,81 Median Target $66,00 $173,00 High Target $72,00 $198,00 Low target $59,00 $135,00 13,9% 24,3% 3,5% 11,7% 27,9% (12,8%) Price is expected to rise by 13,9% and the worst scenario expected is an increase of 3,5% so the expectations are good Worst expectations than those of CC. Price is expected to rise by 11,7% and the worst scenario expected is a decrease of 12,8%.
CORRELATION COEFFICIENT Time Warner Cable 0,4080 DIRECTV 0,7730 TWX 0,8710 Disney 0,9248 S&P 0,9599 Very little correlation. This is because TWC prices are ‘artificially’ set because of the merger. Comcast sets the prices. High correlation. Comcast prices move along with the rest of the market.
Altman Z-score Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.999T5 T1 = Net Working Capital / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Market Capitalization / Total Liabilities T5 = Sales/ Total Assets Zones of Discrimination: Z > 2.6 -“Safe” Zones 1.11 < Z < 2.6-“Grey” Zones Z < 1.1 -“Distress” Zones
Altman Z-score (in $ Millions) 2013 2012 2013 2012 Net Working Capital -4837 3277 -3082 -448 Total Assets 158 813 164 971 48 273 49 809 Retained Earnings 19 235 16 280 -55 363 EBIT 13 689 14 130 4 591 4 942 Market Capitalization 136 421 100 050 39 024 29 935 Total Liabilities 106 798 98 177 41 326 42 526 Sales 64 657 62 570 22 120 21 386 Z-score 1,59 1,43 1,26 1,18 7 %11%
Components: 2013 2012 2013 2012 Z-score in 2013 year while only one factor changed %Change of Z-score caused by one component while others are unchanged Z-score in 2013 year while only one factor changed %Change of Z-score caused by one component while others are unchanged Net Working Capital / Total Assets -0,030 0,020 -0,064 -0,010 1,2 1,37 -4,2% 1,11 -5,7% Retained Earnings / Total Assets 0,121 0,099 -0,001 0,007 1,4 1,47 2,2% 1,17 -0,6% EBIT / Total Assets 0,086 0,086 0,095 0,099 3,3 1,44 0,1% 1,16 -1,4% Market Capitalization / Total Liabilities 1,277 1,019 0,944 0,704 0,6 1,59 10,8% 1,32 12,2% Sales/ Total Assets 0,407 0,379 0,458 0,429 0,999 1,46 1,9% 1,21 2,8% Z-score 1,59 1,43 1,26 1,18 COMCAST's Z-score drivers TWC's Z-score driversComcast TWC Weight of components: Altman Z-score: Components Analysis V% V% Net Working Capital -248% 588% Total Assets -4% -3% Retained Earnings 18% -115% EBIT -3% -7% Market Capitalization 36% 30% Total Liabilities 9% -3% Sales 3% 3% Market price per share went up 39,1 % Market price per share went up 39,4 % Main Driver « The lowest weight but the stronger influance on Z-score while other componensts are unchanged»
Market price per share Net liquidation per share LV/MV 2013 51,97 -5 -9% 2012 37,36 0,85 2% 2013 2012 (in $Millions) Coefficient Balance Sheet Bankruptcy Balance Sheet Bankruptcy Coefficient Balance Sheet Bankruptcy Balance Sheet Bankruptcy Cash And Equivalents 1 1718 1718 10951 10951 1 525 525 3304 3304 Short-Term Investments 0,9 3573 3216 1464 1318 0,9 0 0 150 135 Accounts Receivable 0,75 6376 4782 5521 4141 0,75 954 716 883 662 OtherCurrent Assets 0,7 2408 1686 2055 1439 0,7 665 466 540 378 PROPERTYPLANTANDEQUIPMENT, NET 0,8 29840 23872 27232 21786 0,8 14255 11404 14004 11203 Goodwill 0 27098 0 26985 0 0 3196 0 2889 0 OtherAssets 0,5 11107 5554 13559 6780 0,5 1313 657 649 325 OtherIntangibles 0,7 76693 53685 77204 54043 0,7 27365 19156 27390 19173 TOTALASSETS 158813 94512 164971 100456 48273 32922 49809 35180 Current Liabilities 1 18912 18912 16714 16714 1 5226 5226 5325 5325 NetCash 139901 75600 148257 83742 43047 27696 44484 29855 Long-term liabilities 1 87886 87886 81463 81463 1 36100 36100 37201 36100 Liquidation Value 52015 -12286 66794 2279 6947 -8404 7283 -6245 Common Shares Outsatnding 2625 2625 2678 2678 288 288 308 308 Net liquidation pershare ($) 20 -5 24,94 0,85 24 -29 24 -20 2012 2013 Bankruptcy: Liquidation Value Analysis The liquidation value of a firm is negative, he firm's debt exceeds the market value of assets The liquidation value of a firm is negative, he firm's debt exceeds the market value of assets Market price per share Net liquidation per share LV/MV 2 013 136 -29 -22% 2 012 97 -20 -21%
Weighted average cost of capital Z =E/(E+D)*Cost of equity+D/(E+D)*Cost of Debt*(1-Tax Rate) WACC 7.64 % 7.45% ROI 10.86% 9.22% Comcast Corp's weighted average cost Of capital is 7.64%. Comcast Corp's return on invested capital is 10.86%. Comcast Corp generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Time Warner Cable Inc's weighted average cost Of capital is 7.45%. Time Warner Cable Inc's return on invested capital is 9.22%. Time Warner Cable Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Generally it t costs more COMCAST than TWC to raise the capital needed for the investment
What is happening in MEDIA industry now? HOTRUMORS:Apple Collects 15%of Revenue GeneratedFromHBONOW andOtherApple TVAppsHOTNEWS: Comcast Says It’s Not Talking to Apple About Apple TV, Because Apple Hasn’t AskedHOT NEWS: Watch Out, Comcast: Apple May Soon Launch a Live TV ServiceApple TV isn't aworry for Comcast -yet
Comcast-TWC Merger Called Off Comcast announced on the 23rd April that its merger agreement with Time Warner Cable and its related transactions agreement with Charter Communications, Inc. have been terminated. The merger, which would have made the combined entity the largest pay-TV operator in the U.S., had garnered a lot of negative attention since it was announced in February of 2014. FCC Chairman Tom Wheeler issued a statement on the latest developments, which made it clear why he was opposed to the merger. It was the potential power that the combined entity would have yielded in the high speed internet market that worried him the most.

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FINANCIAL ANALYSIS OF COMCAST AND TIME WARNER CABLE

  • 1.
  • 2.
    Martyna Zdziebło Justyna Bąk AliEL Shaeri Emma Qi Yang Maria Albarracin Ortiz María Bernabé Match Referees
  • 3.
    AGENDA: 1. Quick factsabout both companies 2. Industry description 3. Industry majors players global comparison 4. Products 5. Financial Statements 6. Financial Ratios 7. Du Pont Equation 8. Mix Analysis 9. Capital, Research&Development, Advertising Expenditures 10. Correlation Coefficient 11. Altman Z-score 12. Hot news about Media Industry
  • 4.
    Media Industry Media CommunicationsSector Communications CMCSA Market Symbol TWC $136.43 B Market Capitalization $37.66 B 12/ 31/2013 Fiscal Year End 12/ 31/2013 136 000 Number of Employees 51 600 Philadelphia, Pennsylvania at One Comcast Center Headquartes New York City, New York Team Quick Facts 3.6 x 2.6 x
  • 5.
    Foundation 1963 Ralph Roberts 1963 built ona strategy of mergers and acquisitions 1990
  • 6.
    1963 American Television and Communications (ATC) isfounded 1973 • Time Inc. acquires 9% of ATC • Warner Communications forms Warner Cable 1989 1992 2009 Merger of Time Inc. and Warner Communications for $14.9 billion announced, later to become Time Warner Inc; ATC and Warner Cable become Time Warner Cable, a subsidiary of Time Warner TWC separates from Time Warner Inc: Time Warner held a total of 300 million shares of Time Warner Cable common stock Key milestones of TWC
  • 7.
  • 8.
    Brian L.Roberts RobertD. Marcus 55 Age 49 Wharton School, University Pensylvania ‚81 Education Columbia Law School ‚90 CEO, Chairman of the Board, Director, President POSITION CEO, Chairman of the Board, Former COO, Former President 1998 Director 2013 1990 President 2010-2014 2002 CEO 2014 1994 Chairman of the Board 2014 $31 367 254 Total Annual Compensation in 2013 $8 519 154 +7,7 % Compensation changed from 2012 -15,6 % Control of 33 1/3% of the voting rights of the Comcast Corporation Others Leaders Stats 3.7 x
  • 9.
  • 10.
  • 11.
  • 12.
    Cable Industry toGDP Cable Industry Infrastructure Expenditure Source: BEA.GOV by Industry GDP and Economy.com Industry in which Comcast and TWC operate is very competitive , customer acquisition is the key to future growth, and that is why the industry is also quite capital intensive. Trends are similar!
  • 13.
    Industry Price ElasticityCable Price to CPI Source: NCTA and NCTA (Average Price for Expanded basic) and BLS for CPI statistics
  • 14.
    Delivery of telecommunications services Delivery of informationto the American consumer Delivery of entertainment to the American consumer Industry Functions
  • 15.
    10. Rogers CommunicationsInc. 1. COMCAST CORP. 2. DIRECTV 3. Time Warner Cable Inc. 4. DISH Network Corp. 5. Charter Communications Inc. 6. Cablevision Systems Corp. 7. EchoStar Corp. 8. Shaw Communications Inc. 9. BCE Inc. In terms of market share!
  • 16.
    BUSINESSESHOUSEHOLDS INDUSTRY – CUSTOMERS CableTV audience: U.S. residents age 12+ who subscribe to either analog or digital cable television service at home. QUICK FACTS 1. More than 60% of Americans subscribe to cable television. 2. Cable television reaches nearly six in 10 adults age 18-49. 3. Cable subscribers closely mirror the age/gender profile of the average American.
  • 17.
    The estimated SalesGrowth Rate for the future period in the industry is of 3,97%. INDUSTRY - SIZE SALES (Revenues) • $ 202,5 B. MARKET CAPITALIZATION • $ 652,6 B. Total dollar market value of the shares outstanding of all companies in the industry • Growth in Net Income – Last 5 years: 14,16% • Growth in Revenue – Last 5 years: 3,16% 18 FIRMS Sources: www.bloomerg.com , http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histgr.htm l
  • 18.
    INDUSTRY - MAJORPLAYERS In terms of market share!
  • 19.
  • 20.
    INDUSTRY - MAJORPLAYERS : COMPARISON COMPANY MARKET SHARE MARKET CAP. COMCAST 26,70% $147,411 DIRECTV 20,50% $43,900 Time Warner Cable 14,20% $42,672 DISH Network Corp. 9% $32,056 Charter Communications Inc. 5,30% $20,810 Cablevision Systems Corp. 4,10% $5,054 EchoStar Corp. 2,10% $4,709 Shaw Communications Inc. 2,10% $10,630 BCE Inc. 1,50% $37,206 Rogers Communications Inc. 1,10% $17,673 Having a high market share does not necessarily have to mean a high market capitalization, and viceversa Notice how BCE Inc’s shares are the fourth most valued shares even though its market share is not very high
  • 21.
    C Financial Data 2013– Comparison with global competitors Market Capitalization Gross Margin % Revenue Net Income $ 27,3 B 2nd among the competitors! $ 22,12 B The biggest Revenue! $ 31,75 B 3rd biggest Revenue! 2nd biggest Revenue! $ 102,56 B X3,8 $ 64,66 B X2,0 91,31% 82,34% 53,25% 2nd biggest %GM! 4th biggest %GM! 1st biggest %GM! -8,97% $ 7,14 B $ 1,95 B $ 4,61 B The biggest NI! 4 th biggest NI!2nd biggest NI! X1,5 The best company among the competitors! Source: www.wikinvest.com/stock/Comcast_(CMCSA)/Data 3rd among the competitors! $ 27,11 B
  • 22.
    Financial Data 2013– Comparison with global competitors Free Cash Flow Total Assets Goodwill&Intangibles Total Liabilities $ 48,27 B $ 158,81 B $ 21,91 B The biggest Assets! 2nd biggest Assets! 3rd biggest Assets! X3,3 $ 115,62 B $ 42,53 B $ 25,99 B The biggest Debt! The biggest Goodwill&I ntangibles! The biggest FCF! 2nd biggest Debt! 3rd biggest Debt! $ 103,79 B $ 29,76 B$ 10,79 B 2nd biggest Goodwill&Intan gibles!3rd biggest Goodwill&Inta ngibles! 3rd biggest FCF! 2nd biggest FCF! $ 5,36 B$ 2,54 B $ 1,33 B X2,1 X2,7 X3,5 Comcast is a leader in MEDIA industry – it has the biggest Revenue, Assets, NI, FCF as well as Market Cap. TWC is the second largest cable company in the U.S. Other strong competitors are Direct TV, Discovery Communications and Virgin Media. Source: www.wikinvest.com/stock/Comcast_(CMCSA)/Data
  • 23.
    INDUSTRY - MAJORACQUISITIONS OR EVENTS
  • 24.
    QUICK FACTS: • Parties:Comcast and AT&T Broadband • July 8, 2001, Comcast made a proposal to merge with AT&T’s Broadband • $72 Billion Transaction • 22 million subscribers • Comcast acquisition of AT&T doubled the size of the company making it in the US larger cable provider • Income growth through leveraging scale with the addition of new services The biggest corporate merger of 2001 Nearly double the size of its next-biggest rival, AOL Time Warner Sales growth 117 % ! Net income growth 1282 %
  • 25.
    QUICK FACTS • Parties:AOL and Time Warner • Announced on January 10, 2000 • Oficially filed on February 11, 2000 • $164B deal!!! • Ownership: 50%-50%? AOL HIGHER CAPITALIZATION Even though TW had higher revenues and far more assets!!! 51%GROWTH AND PROFITABILITY FELL 2002: $99B LOSS!!! AOL TW’s value fell $226B to $20B « BIGGEST MISTAKE IN CORPORATE HISTORY »
  • 26.
    QUICK FACTS: • Parties:Comcast and GE • $ 30B deal • Important dates:  December 3, 2009  February 12, 2013  March 2013 NBC Universal was owned by GE CC announces the intention to complete the acquisition COMCAST purchases 51% of NBC ACQUISITION COMPLETED
  • 27.
    QUICK FACTS: • Parties:Comcast and Time Warner Cable • Announced on February 13, 2014 • $45,2B deal • Complete acquisition • 30 million subscribers • 33% of paid TV customers in the U.S • Currently waiting for permission of the authorities to complete the acquisition. 284,9 million shares Comcast: 22,6 million + TWC: 11,2 million « This transaction is all about increasing competition and creating more customer benefit as a result of gaining additional scale » - David Cohen Comcast Vice-President
  • 28.
    QUICK FACTS: • Parties:AT&T and DIRECTV • Announced on May 18, 2014 • $48,5B deal • Aiming to increase AT&T’s market share in the pay TV sector • Access to new markets • Currently waiting for permission of the authorities to complete the acquisition. $48,5 B:  AT&T will pay DIRECTV shareholders $95/share in cash and stock  Including assumed debt, the deal amounts to $67,1B LATIN AMERICA
  • 30.
  • 31.
    Quality of productsand services Triple-Service Bundles In terms of service, both Comcast & TWC offer similar packages. Comcast’s choices, however, could be streamlined down to 3 or 4 rather than confusing customers with 5 options. Internet Service Based on nothing else but Netflix ISP rankings. HD DVR & Service Because 90 hours of HD is a lot more than 75 hours! Features Because X1 is way more advanced (if available). Channels Because it’s too hard to do a direct comparison, and a difference of a few channels shouldn’t the tip the scale. Customer Service Based on American Customer Satisfaction Index. Special Offers However, if TWC wants to be more competitive they should give you the HBO and Cinemax for free for six months rather than charge $10 per mo. Prices Because that Comcast two years plan just seems too long and complicated with 3 variations (and 2 price increases) throughout the agreement. TOTAL GOALS Who is scoring a goal? Products-Services Why? 0 0 00 0 0 4 1 « Amazing Goals Comcast !» Source: www.comcast.com and www.timewarnercable.com
  • 32.
    Marketing Strategies Strategies Catalogue site Costumer-friendly Dynamicpricing Partnership Personalized advertising Building site Community-focused Dynamic pricing Declaration of quality Investment in others tech Different approach De-emphasize the bundle and became more willing to get a broadband-only customer Focuse on the bundle of video, Internet, and phone Target Group Video, high-speed internet andComcast digital voice customers Professional Youngsters (Source: Marketing Plan Pro), Upper- Medium Income Household, and Baby Boomers Slogan It's Comcastic! ; Xfinity (Comcast) - The future of awesome Enjoy Better « BRAVO COMCAST! More opportunities and less threats than TWC»
  • 33.
    Comparative Income Statement– Horizontal Analysis (in $ Millions) 2013 2012 $V %V 2013 2012 $V %V Total Revenue 64 657 62 570 2 087 3,3% 22 120 21 386 734 3,4% Cost of Revenue 19 670 19 929 -259 -1,3% 6 450 6 137 313 5,1% Gross Profit 44 987 42 641 2 346 5,5% 15 670 15 249 421 2,8% Operating Expenses: Research Development Selling General and Administrative 23 553 22 664 889 3,9% 7 690 7 425 265 3,6% Non Recurring 119 115 4 3,5% Others 7 871 7 798 73 0,9% 3 281 3 264 17 0,5% Total Operating Expenses 31 424 30 462 962 3,2% 11 090 10 804 286 2,6% Operating Income or Loss 13 563 12 179 1 384 11,4% 4 580 4 445 135 3,0% Income from Continuing Operations Total Other Income/Expenses Net 212 992 -780 -78,6% 11 497 -486 -97,8% Earnings Before Interest And Taxes 13 689 14 130 -441 -3,1% 4 591 4 942 -351 -7,1% Interest Expense 2 574 2 521 53 2,1% 1 552 1 606 -54 -3,4% Income Before Tax 11 115 11 609 -494 -4,3% 3 039 3 336 -297 -8,9% Income Tax Expense 3 980 3 744 236 6,3% 1 085 1 177 -92 -7,8% Minority Interest -319 -1 662 1 343 -80,8% -4 4 -100,0% Net Income From Continuing Ops 6 730 7 162 -432 -6,0% 1 954 2 155 -201 -9,3% Net Income 6 816 6 203 613 9,9% 1 954 2 155 -201 -9,3% Preferred Stock And Other Adjustments Net Income Applicable To Common Shares 6 816 6 203 613 9,9% 1 954 2 155 -201 -9,3% COMCAST TIME WARNER CABLE $64 657 $62 570 $21 386$22 120 X 2,9X 2,9 3,4%3,3% 9,9% -9,3% As NI rose faster than sales, ROS is going to rise! Total Revenue Net Income Applicable to Common Shares In 2013 Comcast purchased GE’s 49% remaining interest in NBCU (for approximately $16.7 billion). As they own all of NBCU’s NI, they no longer subtract it and that’s why their NI rose so hugely! The biggest $V! Costs have not changed enormusly, so they are not the reason of a huge increase in the NI! Increase in Comcast’s Revenue was primarly due to:  12.4 mln customers subscribed to at least one of HDTV or DVR advanced video services (0,6mln more than in 2012)  Increase in the number of residential High-Speed Internet customers, higher rates from customers receiving higher levels of service  Higher prices and an increase in the volume of advertising units sold  Strong performance of Despicable Me 2 and Fast and Furious 6  Higher guest attendance and increase in per capita spending at the Orlando and Hollywood Theme Parks Increase in TWC’s Operating Costs and Expenses was primarly due to:  contractual rate increases, carriage of new networks  increased headcount and higher compensation costs per employee  Higher Selling, general and administrative expenses - higher marketing costs (which included the impact of increased spending due to temporary blackouts resulting from programming vendor disputes) and increased facilities costs $6 816 $6 203 $1 954 $2 155 Increase in TWC’s Revenue was primarly due to:  Price increases and a greater percentage of subscribers purchasing higher-priced tiers of video service,  Growth in average revenue per subscriber and an increase in high- speed data subscribers  Growth in high-speed data and voice Business Services subscribers, as well as increases in cell tower backhaul and Metro Ethernet revenue  Growth in non-political advertising revenue (primarily associated with advertising inventory sold on behalf of other video distributors (“ad rep agreements”)) X3,5 X2,9 As NI fell while Sales increased, ROS is going to fall! OVERALL: Comcast’s NI looks great (much more better than TWC’s) but it’s mainly due to the decrease in Minority Interest and not the Increase in Sales!
  • 34.
    Comparative One DayIncome Statement – Vertical Analysis (in $ Millions) 2013 % of sales 2012 % of sales 2013 % of sales 2012 % of sales Total Revenue 180 100,0% 174 100,0% 61 100,0% 59 100,0% Cost of Revenue 55 30,4% 55 31,9% 18 29,2% 17 28,7% Gross Profit 125 69,6% 118 68,1% 44 70,8% 42 71,3% Operating Expenses: Research Development - - - - - - - - Selling General and Administrative 65 36,4% 63 36,2% 21 34,8% 21 34,7% Non Recurring - - - - 0,3 0,5% 0 0,5% Others 22 12,2% 22 12,5% 9 14,8% 9 15,3% Total Operating Expenses 87 48,6% 85 48,7% 31 50,1% 30 50,5% Operating Income or Loss 38 21,0% 34 19,5% 13 20,7% 12 20,8% Income from Continuing Operations Total Other Income/Expenses Net 1 0,3% 3 1,6% 0,03 0,0% 1 2,3% Earnings Before Interest And Taxes 38 21,2% 39 22,6% 13 20,8% 14 23,1% Interest Expense 7 4,0% 7 4,0% 4 7,0% 4 7,5% Income Before Tax 31 17,2% 32 18,6% 8 13,7% 9 15,6% Income Tax Expense 11 6,2% 10 6,0% 3 4,9% 3 5,5% Minority Interest -1 -0,5% -5 -2,7% 0 0,0% 0 0,0% Net Income From Continuing Ops 19 10,4% 20 11,4% 5 8,8% 6 10,1% Net Income 19 10,5% 17 9,9% 5 8,8% 6 10,1% Preferred Stock And Other Adjustments - - - - - - - - Net Income Applicable To Common Shares 19 10,5% 17 9,9% 5 8,8% 6 10,1% COMCAST TIME WARNER CABLE 29,2% 70,8% 28,7% 71,3% 31,9% 68,1% 8,8% 30,4% 69,6% 10,5% 48,6% 50,1% 20,7%21,0% 19 5 X 3,8 +1,2% TWC’s GM% was higher! +3,2% Comcast increased its GM%! -1,5% +1,5% +0,5% -0,5% -1,7% Comcast’s ROS is higher! +1,5% -0,3% Comcast’s Cost of Revenue as % of Total Revenue was higher than TWC’s! INCOME STATEMENT: FOR COMCAST!!! TWC’s GM% decreased!
  • 35.
    Quarterly Revenue andIncome +1,6% 25,6% 24,0% +2,1% +12,4% +16,5%  Revenue and NI were higher in 2Q&3Q of each year – due to increases in consumer advertising in the spring and in the period leading up to and including the holiday season  3Q12's Revenue and NI were boosted by London Olympics  Revenue and NI benefit in even-numbered years from advertising related to candidates running for political office  TWC’s quarterly Revenues were more steady than Comcast’s,  3Q2012’s NI was boosted by London Olympics  3Q2012 benefited from the strong results of the July 2012 movie "The Dark Knight Rises” (cost $250 million, brought in nearly $1.1 billion globally)
  • 36.
    (in $Millions) 20132013(%) 2012 2012(%) V$ ( V%) 2013 2013(%) 2012 2012(%) V$ (V%) ASSETS Cash And Equivalents 1718 1% 10951 7% -9233 16% 525 1% 3304 7% -2779 16% Short-Term Investments 3573 2% 1464 1% 2109 244% 0 - 150 0% -150 0% Accounts Receivable 6376 4% 5521 3% 855 115% 954 2% 883 2% 71 108% OtherCurrent Assets 2408 2% 2055 1% 353 117% 665 1% 540 1% 125 123% TOTALCURRENTASSETS 14075 9% 19991 12% -5916 70% 2144 4% 4877 10% -2733 44% Property Plant&Equipmnet, Net 29840 19% 27232 17% 2608 110% 14255 30% 14004 28% 251 102% Goodwill 27098 17% 26985 16% 113 100% 3196 7% 2889 6% 307 111% Long-Term Investments 3770 2% 6325 4% -2555 60% 183 0% 382 1% -199 48% OtherIntangibles 76693 48% 77204 47% -511 99% 27365 57% 27390 55% -25 100% OtherLong-Term Assets 7337 5% 7234 4% 103 101% 1130 2% 267 1% 863 423% TOTALASSETS 158813 100% 164971 100% -6158 96% 48273 100% 49809 100% -1536 97% Comparative Balance Sheet: Assets 3.3 x 3.3 x 4 % 3 % 84 % 84 % The major type of asset , almost 50 % of Total Assets in both companies The assets under this category include mainly: • Franchise rights; • Trade names; • FCC license; • Patents and other technology rights; • Software; • Customer relationship; • Cable franchise renewal costs and contractual operating rights and Other agreements and rights Franchise rights The assets under this category include mainly: • Cable franchise rights (the major part of it) • Customer relationships • Cable franchise renewals access rights Intangible assets consists in 77 % of Franchise rights. They come from agreements with state and local authorities that allow access to homes and businesses in cable service areas that were acquired in business combination. «Strong barrier to entry to would-be competitor ! » To sum up, in both companies inangible assets in total assets are huge and it is definitely an area that the firms need to watch for in the future. Why? While most of them are indefinite-lived assets that can not be lost due to amortization, there is the possibility that the values may be written down if some of the acquisitions do not work out in the future, which could be prove problematic. In 2013 year Comcast reported $29.8 B in PP&E which was 10 % more than in previous year. The grow was mainly due to acquisitions of real estate properties which resulted in increase of $2,2 billion PPE. In 2013 TWC reported $14,2 B of PP&E which increased only 2 % comparing to previous year.To sum up, we can say that Comcast was expanded on more. In 2013 Comcast reported $27.1B of goodwill which accounts for 17% of assets. This is inline with the $26.98B that it reported in goodwill at the end of 2012. BUT generally, the big amount of goodwill in Comcast's assets is caused mainly by big acquisitions performed in previous years (the $10.9B in goodwill that was acquired in 2011 with the 51% stake in NBC Universal being purchased for a total consideration of $24.1B. Also contributing was the $982M in goodwill that was acquired when the company purchased the remaining 50% stake in Universal Orlando). To sum up, goodwill percentages of total assets in both companies is not very excessive but in Comcast is much higher than TWC, so this is also an area that we need to watch for Comcast. Goodwill has an accounting value, it has no economic value. if the acquisition does produce the value that was originally expected, then some of that goodwill might come off of the balance sheet, which could, in turn lead to the stock going down. TWC in 2013 reported $3,2 B in goodwill which accounts 7 % of asset. It is similar to 2012 year. In 2013 and 2012 Comcast's receivables, equal to 10 % and 9% of its revenue, respectively. TWC's receivables, equal to 4 % of its revenue in both years. In case of both companies receivables stated low percentage of sales so it is seems to be anything to worry about here for either of these two companies. In both companies Cash And Equivalents generally stated a low percentage of sales but this type of assets declined the most in both companies. In 2013 Comcast reported only $5.3 B in cash and equivalents and short-term investment. Cash decreased 84 %. In 2013 Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal. The total consideration for these transactions consisted of $11.4 billion of cash on hand. In 2013 TWC reported only $525 M in cash and equivalents and short-term investment. Cash decreased 84 %. In 201 TWC completed its acquisition of DukeNet for $572 milion in cash.
  • 37.
    (in $ Millions)2013 2013 (%) 2012 2012 (%) V$ V (%) 2013 2013 (%) 2012 2012 (%) V$ V (%) LIABILITIES & EQUITY Accounts Payable 5 528 3% 5 324 3% 204 104% 565 1% 647 1% -82 87% Accrued Expenses 7 967 5% 5 931 4% 2 036 134% 1 837 4% 1 805 4% 32 102% Current Portion Of Long-Term Debt/Capital Lease 3 280 2% 2 376 1% 904 138% 1 767 4% 1 818 4% -51 97% Other Current Liabilities 1 239 1% 2 232 1% -993 56% 869 2% 872 2% -3 100% Unearned Revenue, Current 898 1% 851 1% 47 106% 188 0% 183 0% 5 103% TOTAL CURRENT LIABILITIES 18 912 12% 16 714 10% 2 198 113% 5 226 11% 5 325 11% -99 98% Long-Term Debt 44 567 28% 38 082 23% 6 485 117% 23 335 48% 25 172 51% -1 837 93% Deferred Tax Liability Non-Current 31 935 20% 30 110 18% 1 825 106% 12 098 25% 11 280 23% 818 107% Other Non-Current Liabilities 11 384 7% 13 271 8% -1 887 86% 667 1% 749 2% -82 89% TOTAL LIABILITIES 106 798 67% 98 177 60% 8 621 109% 41 326 86% 42 526 85% -1 200 97% Minority Interest 1 321 1% 17 438 11% -16 117 8% 4 0% 4 0% 0 100% Common Stock 30 0% 31 0% -1 97% 3 0% 3 0% 0 100% Additional Paid In Capital 38 890 24% 40 547 25% -1 657 96% 6 951 14% 7 576 15% -625 92% Retained Earnings 19 235 12% 16 280 10% 2 955 118% -55 0% 363 1% -418 -15% Treasury Stock -7 517 -5% -7 517 -5% 0 100% 0 0% 0 0% 0 - Comprehensive Income And Other 56 0% 15 0% 41 373% 44 0% -663 -1% 707 -7% TOTAL EQUITY 50 694 32% 49 356 30% 1 338 103% 6 943 14% 7 279 15% -336 95% TOTAL LIABILITIES AND EQUITY 158 813 100% 164 971 100% -6 158 96% 48 273 100% 49 809 100% -1 536 97% Comparative Balance Sheet: Liabilities&Equity 60 % 9 % 67 % 2,7 x 85 %86 % current assets decreased 30 % while the current liabilities increased by 13 % Comcast was capable to meet only 74 % of its short term obligations in the recent year while in previous year its current assets were 1,2 times bigger than current liabilities. Current assets decreased 56 % while the current liabilities declined by 2 % TWC was able to meet only 41 % of short term obligatoins the recent year while in 2012 92 % In both years and in both companies their assets were financed mainly through debt. While analyzing the debt structure of the company, it is revealed that their debt structures are heavily based on long term liabilities as compared to short term. In Comcast current liabilities stated 18% and 17 % of Total Liabilities respectively and in TWC in both years 13 %. 113 % 117 % In Comcast the proportion of long term debt is also increasing with a greater percentage as compared to current liabilities which represents that company is heavily depend on long term debt which is 28% of total assets. TWC tried to reduce the proportion of long- term debt in financing assets (declined by 7 % ) but it still was almost 50 % of total assets. Its huge. Comcast reported $19,24B of retained earnings on its most recent balance sheet, while TWC had a retained earnings deficit of $55 M on its balance sheet Going back to the end of 2009, Comcast had retained earnings of $10.0B. So, over the last years, Comcast grew its retained earnings at a cumulative rate of 92,4 %, which is impressive.Comcast was growing its net worth. The more earnings retained, the faster it grows and increases growth rate for future earnings. This deficit is due mostly to the aggressive share buyback policies being pursued by the management at TWC. For the year ended December 31, 2013, the Company repurchased 24.0 million shares of TWC common stock for $2.526 billion, including 0.4 million shares repurchased for $51 million that settled in January 2014. . Minority Interest fell 82 %. In 2013 Comcast acquired GE’s remaining 49% common equity interest in NBCUniversal for approximately $16.7 billion.
  • 38.
    Income Statement 5Year Growth Rate 2010 2011 2012 2013 2014 Revenue 18.868 19.675 21.386 22.120 22.812 Gross Marg. 9.927 10.537 9.942 10.342 5.294 Net income. 1.308 1.665 2.155 1.954 2.031 2010 2011 2012 2013 2014 Revenue 37.937 55.842 62.570 64.657 68.775 Gross Marg. 22.687 35.084 42.641 44.987 47.863 Net income. 3.635 4.160 6.203 6.816 8.380
  • 39.
    Balance Sheet 5Year Growth Rate 6.8 % -18,24% A2010 A2011 A2012 A2013 A2014 45.822 48.276 49.809 48.273 48.501 36.612 40.746 42.530 41.330 40.488 9.210 7.530 7.279 6.943 8.013 BALANCE SHEET DATA Total Assets Total Debt including current portion Shareholders´equity 2010 2011 2012 2013 2014 118.534 157.818 164.971 158.813 159.339 74.180 110.544 115.615 108.119 106.628 44.354 47.274 49.356 50.694 52.721 BALANCE SHEET DATA Total Assets Total Debt including current portion Comcast Shareholders´equity
  • 40.
    Comparative Cash Flow COMCASTTIME WARNER CABLE (in $ Millions) 2013 2013 Operating Acitivities 14 608 4 864 Net income 6 816 1 954 Depreciation and amortization 7 871 3 281 Change in Accounts Receivable -855 -71 Change in Other Current Assets -353 -125 Change in other LT Assets -103 -863 Change in Accounts Payable 204 -82 Change in Accrued Expenses 2 036 32 Change in other Current Liabilities -993 -3 Change in Unearned Revenue, C 47 5 Change in Deferred Tax Liability NC 1 825 818 Change in Other NC Liabilities -1 887 -82 Investing Activities -9 594 -2 758 Capital expenditures -10 479 -3 532 Change in STI -2 109 150 Change in Goodwill -113 -307 Change in LTI 2 555 199 Change in Other Intangibles 511 25 Change in Comprehensive Income 41 707 Financial Activities -14 247 -4 885 Stock issued -1 0 Dividends paid -3 861 -2 372 Change in Current Portion Of LT Debt 904 -51 LT Debt 6 485 -1 837 Minority Interest -16 117 0 Change in Additional Paid In Capital -1 657 -625 Increase (decrease) in cash and cash equivalents -9 233 -2 779 Operating activities 14 608 4 864 Net Income Investing Activities Financial Activities -2 779-9 233 Increase/Decrease in cash and cash equivalents Depreciation and Amortization Capital expenditures 6 816 7 871 3 281 -9 594 -14 247 -10 479 -2 758 -3 532 1 954 -4 885 -2737Dividends paid -3 861 X3,0 46,7% of OCF 53,9% of OCF 40,2% of OCF 67,5% of OCF X3,5 X2,9 71,7% of OCF 72,6% of OCF 26,4% of OCF 56,3% of OCF Change in LT Debt Change in Current portion of LT Debt 904 6485 -51 -1837 Comcast took out huge debt! TWC is repaying its debt, but debt is still huge! Minority Interest -625-1 657 X3,3 Comcast acquired GE’s 49% remaining common equity interest in NBCU for approximately $16.7 billion. TWC completed its acquisition of DukeNet for $572 million in cash (including the repayment of debt), net of cash acquired and capital leases assumed. BOTH COMPANIES HAVE CASH OUTFLOW!!!
  • 41.
    5 year CashFlow 1963X2,1 X2,5 X2,7 X2,5 X2,7 Comcast’s OCF was more than 2 times bigger than TWC’s in each year. X2,0 X3,5 X0,4 X2,7 X2,1 Comcast’s Investing CF was 0,4 – 3,5 times bigger than TWC’s. X2,9X2,7X1X221,5X0,4 Comcast’s Financing CF was 0,4 – 221,5 times bigger than TWC’s That’s why Comcast can buy TWC! -5 056
  • 42.
    5 year OperatingCash Flow – top items 1963 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Other working capital 3. Amort. of debt discount 1. Amort. of debt discount 2. Other working capital 3. Net income 1. Other working capital 2. Amort. of debt discount 3. Depn& amort 1. Net income 2. Depn& amort 3. Other working capital 1. Net income 2. Depn& amort 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Deferred income taxes 1. Depn& amort 2. Net income 3. Other non-cash items Depreciation&Amortization, NI and other working capital were the biggest drivers of Comcast’s OCF Depreciation&Amortization, NI and deferred income taxes were the biggest drivers of TWC’s OCF
  • 43.
    5 year InvestingCash Flow - top items 1963 1. Investments in PPE 2. Other inv. activities 3. Purchases of intangibles 1. Investments in PPE 2. Acquisitions, net 3. Other inv. activities 1. Investments in PPE 2. Purchases of investments 3. Other inv. activities 1. Investments in PPE 2. Purchases of intangibles 3. Other inv. activities 1. Investments in PPE 2. Other inv. activities 3. Acquisitions, net 1. Investments in PPE 2. Other inv. Activities 3. - 1. Investments in PPE 2. Acquisitions, net 3. Sales of intangibles 1. Investments in PPE 2. Other inv. activities 3. Purchases of investments 1. Investments in PPE 2. Other inv. Activities 3. - 1. Investments in PPE 2. Sales/Maturities of investments 3. Purchases of investments Investments in PPE and other investing activities were the biggest drivers of both companies’ ICF 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 96% 50% 447% 80% 76% 102% 83% 93% 93% 101% Comcast TWC Investments in PPE as % of ICF Both companies were spending more than 50% of their ICF in each year on themselves (CAPEX)!
  • 44.
    5 year FinancingCash Flow - top items 1. Debt issued 2. Common stock repurchased 3. Debt repayment 1. Debt issued 2. Common stock repurchased 3. Debt repayment 1. Common stock repurchased 2. Debt issued 3. Debt repayment 1. Debt repayment 2. Common stock repurchased 3. Dividend paid 1. Other financing activities 2. Debt issued 3. Debt repayment 1. Debt issued 2. Other financing activities 3. Dividend paid 1. Debt repayment 2. Debt issued 3. Common stock repurchased 1. Debt repayment 2. Dividend paid 3. Debt issued 1. Debt issued 2. Common stock repurchased 3. Dividend paid Debt issued, common stock repurchased, debt repayment and dividend paid were the biggest drivers of both companies’ FCF 2013 -5 056 1. Common stock repurchased 2. Debt repayment 3. Dividend paid 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 1461% 59% 100% 24% 112% 302% 11782% 63% 65% 54% Comcast TWC Dividends paid + Common Stock Repurchased as % of FCF The money which was returned to shareholders represented huge share of both companies’ FCF ! Overall: As Comcast has huge CAPEX ,its Depn&Amort is also huge. Hovewer Comcast does not have enough cash to finance it, so it is taking out huge debt (but total debt is decreasing!) Overall: TWC’s CAPEX and Depn&Amort are also huge, but since 2012 TWC has been repaying more debt than issuing. However its debt to asset ratio is still enormous (86% in 2013). In 2014 its Operating inflow was high enough to cover financial and investing outflows.
  • 45.
    Revenues by segmentsin 2007-2013 %ofCableTVrevenuesin TotalReneue Drops are consistent with market trends, the cable TV industry has seen declines in video subscribers over the last several years (customer complaint about rising cable subscription prices what is caused by rising programming costs) second major component In 2011 year the situations changed, revenues from NBCU, Comcast Content &Others grew significantly and were second main part of Comcast’s total revenues . It happened because in 2011 year Comcast acquired 51% of NBCUniversal Holdings and a 49% interest in the Comcast Content Business. BUT.. revenues generated from Broadband still remained important « STOP !!!» second major component Revenues from Broadband had nearly doubled from $6.4 billion in 2007 to $12 billion in 2013 and the segment accounted for close to 20% to the company’s overall revenues. Increased in Broadband’s revenues of COMCAST and TWC are consistent with market trends, The increasing need for speed and connectivity is driving broadband growth in the U.S %ofBroadbandrevenuesin TotalReneue Comcast's revenues from other segments were less important in overall revenues , but they were growing constantly although the changes were not spectacular . TWC's revenues from other segments were less important in overall revenues , but they were growing constantly although the changes were not spectacular . Source: www.trefis.com
  • 46.
    EBIDTA by segmentsin 2007-2013 %oftotalEBIDTAgeneretaedby CableTVsegmentinbothcompanies wasfalling(like%ofRevenue) Growth caused by the same reason as growth in revenues Source: www.trefis.com
  • 47.
    Free Cash Flowsby segments in 2007-2013 In Comcast and TWC Cable TV segment generated the most of the company’s free cash flow in every year , however this percentage was falling year by year because both companies were increasing their capital expenditures . Source: www.trefis.com
  • 48.
    5307 5714 6,596 0 5000 10000 20112012 2013 Total capital expenditures 2011-2013 2937 3095 3,198 2800 2900 3000 3100 3200 3300 2011 2012 2013 Total capital expenditures 2011-2013 2 x 22,120 64,657 3,198 6,596 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 CAPEX in Total Revenue in 2013 Total Revenue CAPEX Capital expenditures in 2011-2013 10% of sales 14,5% of sales Category 20122013/2012 2013 20122013/2012 2013 CFtoCapexratio* 1,818 59% 1,07 1,543 124% 1,910 Capextosalesratio 9% 112% 10% 14,5% 100% 14,5% Cash flow to Capex Ratio of TWC also increased from previous year so it might indicate that the TWC is in a position to grow and growth is generally what increases share price and shareholder wealth. TWC takes the maintenance and expansion of its capital infrastructure seriously.
  • 49.
    Capital Expenditures 5year Growth Rate 2010 2011 2012 2013 2014 Gross PPE 28.217 30.920 33.272 35.619 38.552 Acc depr. -14.344 -17.015 -18.530 -20.563 -22.562 Net PPE 13.873 13.905 14.742 15.056 15.990 2010 2011 2012 2013 2014 Gross PPE 56.020 64.087 66.657 72.414 76.363 Acc depr. -32.505 -36.528 -39.425 -42.574 -45.410 Net PPE 23.515 27.559 27.232 29.840 30.953
  • 50.
    2013 2012 Change LIQUIDITY CurrentRatio 0,74 1,20 worse Quick Ratio 0,74 1,20 worse TURNOVER Receivable Turnover 10,14 11,33 worse Total Asset Turnover 0,41 0,38 better PROFITABILITY Return on Sales 10,5% 9,9% better Return on Assets 4,3% 3,8% better Return on Equity 13,1% 9,3% better Gross Margin 69,6% 68,1% better LEVERAGE Debt to Assets 67% 60% worse Debt to Equity 2,05 1,47 worse TIE (times) 5,32 5,60 worse Equity Multiplier 3,05 2,47 worse CASH MANAGEMENT (in days) Days Sales Outstanding 36 32 worse Account Payable Days 101 96 better Cash Conversion Cycle -66 -64 better MARKET VALUE Earnings Per Share 2,60 2,32 better Dividends per Share 0,78 0,65 better Dividend Yield 1,50% 1,74% constant Dividend Payout 30,00% 28,02% better Price to Earnings 19,99 16,10 better Price to Book Value 2,69 2,03 better Market Capitalization $136 B $100 B better Name of Ratio COMCAST Individual Ratios in 2012-2013 40 % up As concerned with the short term solvency of Comcast, Current ratio of the company is deteriorated significantly (38 %) from 2012 to 2013, its below 1, it means that he company cannot pay its current liabilities and should looked at this with extreme caution. Quick ratio is the same because Comcast does not have inventory. Debt to equity ratio of Comcast in 2012 was high and in 2013 increased strongly, about 40 % it is not a good indication, it represented that Comcast was focused on debt financing . As well as debt to asset ratio of Comcast's went up. Financial leverage based on its solvency ratios appears quite high. Debt exceeds equity by more than 2 times, while almost 70 % of assets have been financed by debt. 72 %f of non- current assets consists of intangible assets (such as goodwill and franchise rights and others) As a result, In 2013 the ratio of debt to tangible assets – calculated as Total Liabilities/Tangible assets– is 261 %, which means that all of tangible assets (plant and equipment, inventories, etc.) have been financed by borrowing. Growing Equity Multiplier and decreasing TIE ratios (probably due to increase in interest expenses due to the firm’s focus on debt financing) confirmed that Comcast was focusing on debt financing and had a high amount of leverage. Generally Comcast had in both years high negative CCC, it is great case and it shows that the company has a big power in the industry. Overall its profitability is good, all ratios increased. Generally all ratios increased, market capitalization too, Comcast can be considered as a good investment.
  • 51.
    2013 2012 Change LIQUIDITY CurrentRatio 0,41 0,92 worse Quick Ratio 0,41 0,92 worse TURNOVER Receivable Turnover 23,19 24,22 worse Total Asset Turnover 0,46 0,31 better PROFITABILITY Return on Sales 8,8% 10,1% worse Return on Assets 4,0% 4,3% worse Return on Equity 28,1% 29,6% worse Gross Margin 70,8% 71,3% worse LEVERAGE Debt to Assets 86% 85% worse Debt to Equity 5,95 5,84 worse TIE (times) 2,96 2,96 constant Equity Multiplier 6,95 6,84 worse CASH MANAGEMENT (in days) Days Sales Outstanding 16 15 worse Account Payable Days 32 38 worse Cash Conversion Cycle -16 -23 worse MARKET VALUE Earnings Per Share 6,76 6,97 worse Dividends per Share 2,60 2,24 better Dividend Yield 1,92% 2,30% constant Dividend Payout 38,46% 32,14% better Price to Earnings 20,04 13,94 better Price to Book Value 5,62 4,11 better Market Capitalization $39 B $30 B better Name of Ratio TWC Individual Ratios in 2012-2013 As concerned with the short term solvency of TWC, Current ratio of the company is declined substantialy (55 %) from 2012 to 2013, it is very low only 0,41, it indicates strong lack of liquidity and a risk of bankruptcy. Quick ratio is the same because TWC does not have inventory. Debt to equity ratio of TWC’s in 2012 was very high and in 2013 increased slightly. It means that TWC was highly leveraged and represented a high risk for investors. Debt to asset ratio of TWC was also very high, TWC financed in 2013 86 % of it's assets with debt! It's a lot. We have to note that 66 %f of non- current assets consists of intangible assets (such as goodwill and franchise rights and others) As a result, the ratio of debt to tangible assets – calculated as Total Liabilities/Tangible assets– is 2615%, which means that all of tangible assets (plant and equipment, inventories, etc.) have been financed by borrowing! Generally TWC had in both years also negative CCC, it's good, the company could invest cash received from customers before paying suppliers, however, the situations worsened in recent year. Generally all ratios increased, except EPS. EPS decreased but still was quite high because EPS for full year of 2013 benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program. Since inception of the share repurchase program in November 2010 through December 31, 2013, TWC has repurchased over 25% of its outstanding shares for $7.5 billion at an average price of $82.51 per share Price to earnings rose strongly , the market was willing pay for TWC’s earnings- more. Each company would have to pay more to acquire TWC.
  • 52.
    COMCAST TWC Comcast 20132013 TWC LIQUIDITY 2013 Current Ratio 0,74 0,41 better Quick Ratio 0,74 0,41 better TURNOVER Receivable Turnover 10,14 23,19 worse Total Asset Turnover 0,41 0,46 worse PROFITABILITY Return on Sales 10,5% 8,8% better Return on Assets 4,3% 4,0% better Return on Equity 13,1% 28,1% worse Gross Margin 69,6% 70,8% worse LEVERAGE Debt to Assets 67% 86% better Debt to Equity 2,05 5,95 better TIE (times) 5,32 2,96 better Equity Multiplier 3,05 6,95 better CASH MANAGEMENT (in days) Days Sales Outstanding 35,50 15,53 worse Account Payable Days 101,17 31,53 better Cash Conversion Cycle -65,67 -16,01 better MARKET VALUE Earnings Per Share 2,60 6,76 worse Dividends per Share 0,78 2,60 worse Dividend Yield 2% 2% constant Dividend Payout 30% 38% worse Price to Earnings 19,99 20,04 worse Price to Book Value 2,69 5,62 worse Market Capitalization 136 421 39 024 worse Name of Ratio Who is scoring a goal? Comparative Ratios 2013 4 x 2x 2,6x Current ratio of Comcast was below 1, it idicates a weaking liquidity position, but the situation is better than TWCs which had a strong lack of liquidity. Score for Comcast. Generally Comcast's all leverage ratios looked better than TWC, which is much more leverage , TWC used more debt to finance its assets, higher financial risk. Scores for Comcast again. Comcast is scoring again. It had 4 times more days than TWC to invest it before it had to pay its suppliers. Comcast has a BIG market power in the industry. Genarally, their profitability was quite similar, Comcast had slightly better ROS and ROA, but the main difference was in ROE. TWC had 2 times higher ROE. Why? Du Pont equitation will give the answer. Generally, Comcast comparing to TWC looked worse, but have much more bigger market capitalization. TWC had 2,6 times bigger EPS and it was good quality EPS, because operating cash flow per share (operating cash flow divided by the number of shares used to calculate EPS) was 16,9 and it was greater than reported EPS Score for TWC.
  • 53.
    Industry Comparison :Ratiodata TTM as of 12/31/2014 www.bloomberg.com Comcast has ROA below industry average while TWC higher than industry average Comcast and TWC have Return on Capital higher than industry average.Comcast and TWC have Return on Eguity below industry average but TWC return on equity is much more higer than Comcast's. Current ratios are below industry average, both companies should improve their liquidity position. Comcast below industry average, TWC higher level of leverage than industry average. Comcast below industry average, TWC higher than industry average.
  • 54.
    Industry Comparison :Ratiodata TTM as of 12/31/2014 http://www.bloomberg.com Revenues of both companies grew faster than industry market, but Comcast's revenue increased faster. Capital expenditures are below industry but TWC is investing more to make grower revenues in future.
  • 55.
    Du Pont Equation DuPont analysis tells us that ROE is affected by three things: 1)Financial leverage, which is measured by the equity multiplier (EM) 2)Assets Efficiency which is measured by total asset turnover (TAT) 3)Profitability, which is measured by profit margin( ROS)
  • 56.
    Du Pont Equation (in$ Millions) 2013 2012 2013 2012 Net Income 6 816 6 203 1 954 2 155 Sales 64 657 62 570 22 120 21 386 Total Assets 158 813 164 971 48 273 49 809 Owners Equity 50 694 49 356 6 943 7 279 EM=TA/OE 3,13 3,34 6,95 6,84 TAT=Sales/TA 0,41 0,38 0,46 0,43 ROS=NI/Sales 10,54% 9,91% 8,83% 10,08% ROE=EMxTATxROS 13,45% 12,57% 28,14% 29,61% TWCComcast Du Pont Equation 2.3 x 2.1 x ROS is the major component of ratio. It is also similar in 2013, although Comcasts was higher. In 2013 for every $100 of Sales, Comcast generated $10,54 of Net Income, and TWC generated $8,83 of Net Income. TWC's ROE comparing to Comcast’s looked amazing but the key difference follows straight from leverage, TWC was 2,3 times more leverage. If a company is taking on way too much debt that is not good- increase in lease and debt financing leads towards an increase in interest expenses and reduced profits. In 2013 for every $1 of Total Equity, Comcast owned $ 3.13 of Assets while TWC owned $6.95 of in Total Assets! Its 2,3 times more. Higher Ratio > the more debt is used to finance assets > Higher Risk ! In 2013 for every $1 of Assets, Comcast generated $0.41 in Revenue, and TWC generated $0.46 in Revenue. It's not a big difference, probably both companies had similar pricing strategy.
  • 57.
    Change % Better/WorseChange % Better/Worse EM=TA/OE -6% better 2% worse TAT=Sales/TA 7% better 7% better ROS=NI/Sales 6% better -12% worse ROE=EMxTATxROS 7% better -5% worse 100% BETTER 25% BETTER/75% WORSE Let's talkaboutROE. ROE component’s variation 2013/2012 Comcast’s ROE increased. Comcast improved its assets utilization and profitability of sales. It was good. In 2013 TWC was leverage more but it did not lead to higher ROE because profit margin fell (12 %) and ROE declined too. It can cause some concern.
  • 58.
    Leasing Expenditures Year 1Years 2-3 Years 4-5 More than 5 Total Year 1 Years 2-3 Years 4-5 More than 5 Total Capital lease obligations 7 11 5 14 37 49 Operating lease obligations 385 628 458 673 2 144 149 272 191 300 912 Total contractual obligations 15 773 18 794 16 796 55 679 107 042 9 089 13 518 13 980 47 551 84 138 Contractual obligations outstanding as of December 31, 2013 by the period in which the payments are due no data in the notes COMCAST TWC (in $ Millions) Capital lease obligations Operating lease obl. Total contractual obl. 37 2 144 107 042 49 912 84 138 Similar structure of Operating leases – operating leases due by more than 5 years have the biggest share COMCAST TWC Total Capital lease obligations as % of Total contractual obligations 0,03% 0,06% Total Operating lease obligations as % of Total contractual obligations 2,00% 1,08% Total lease obligations as % of Total contractual obligations 2,04% 1,14% Lease obligations as % of Contractual obligationsObligations outstanding as of December 31, 2013 0,03% 2,00% 2,04% 0,06% 1,08% 1,14% Overall, Comcast finances more of its operations with leasing than TWC. Both companies prefer operating than capital leasing. TWC uses Capital leasing more often than Comcast. X2,35 X1,27 X0,75 Comcast has much more operating leases, but less capital leases than TWC!
  • 59.
    Advertising Expenditures Industry * (in$millions) 2011 2012 2013 2012/2011 2013/2012 2011 2012 2013 2012/2011 2013/2012 2013 AdvertisingExpenditures 4231 4831 4969 14% 3% 635 653 676 2,8% 3,5% 5,3% Advertisingas a% of Sales 8% 8% 3% 3% 1,9% Advertisingas a% ofMargin 11% 12% 3% 4% 4,6% COMCAST TWC5 % more Both companies spend much more than industry average percentage
  • 60.
    Research&Development Expenditures 99% 1% R&D employeesin 2013 Total number of employees R&B employess 61 % 39 % R&D employees in 2013 Total number of employees R&B employess (in$millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013 R&DExpenditures 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 BUY TWC!! Comcast's and TWC's investments in R&D have been almost invisible. Neither company spent enough on it lasts years to even disclose the figure in its annual reports Comcast doesn't want to make that sort of investment in innovation as GOOGLE!!!
  • 61.
    Segments Sales ∆in $M ROS ∆ in $ M TOTAL in $ M Sales ∆/Total ROS ∆/Total SALES V% ROS V% Cable comunication 577 384 961 60% 40% 5,64% 0,97% Cable Network 143 56 199 72% 28% 5,43% 0,65% Broadcast Television -37 23 -14 268% -168% -13,17% 0,29% Filmed Entertainment 25 380 405 6% 94% 5,68% 7,36% Theme Parks 652 -28 623 105% -5% 7,19% -1,35% Total 471 1099 1570 30% 70% 3,24% 1,72% (Revenue in the 2nd year – Revenue in the 1st year) x (operating margin from 1sr year/ revenue from the 1st year) ROS V% x Revenue in the 1st year ($41836-$39604) x ($10811/$41836) (25,8%-24,9%) x ($39604) Segments Sales∆in$M ROS ∆in$M TOTALin$M Sales∆/Total ROS∆/Total SALESV% ROSV% Cable comunication 152 -17 135 113% -13% 3,43% -0,1% SALES MIX – Cable Communication
  • 62.
    ROS increased onlyby 0,97%, but its $ impact was huge! SALES MIX – Cable Communication
  • 63.
    DOL, DFL andDTL 4,5% of sales Formulas: DOL -0,94 -2,07 DFL -3,87 0,42 DTL 3,62 -0,88
  • 64.
    STRONG BUY BUY HOLD SELL STRONG SELL 11x 1 = 11 11 x 2 = 22 4 x 3 = 12 0 x 4 = 0 0 x 5 = 0 26 45 Current Price: $57,94 45/26 = 1,73 11 x 1 = 11 11 x 2 = 22 3 x 3 = 9 0 x 4 = 0 0 x 5 = 0 25 42 Three-Month-Ago Price: $52,91 42/25 = 1,68 STRONG BUY BUY HOLD SELL STRONG SELL 4 x 1 = 4 6 x 2 = 12 12 x 3 = 36 1 x 4 = 4 0 x 5 = 0 23 56 Current Price: $154,81 56/23 = 2,43 4 x 1 = 4 5 x 2 = 10 12 x 3 = 36 0 x 4 = 0 0 x 5 = 0 21 50 Three-Month-Ago Price: $153,27 50/21 = 2,38
  • 65.
    P/E RATIO Current Price$57,94 P/E 18,11 P/E Forward 15,79 EPS 2014 = 3,20 EPS 2015 = 3,67 G% = 14,6% Current Price $154,81 P/E 21,59 P/E Forward 17,47 EPS 2014 = 7,17 EPS 2015 = 8,86 G% = 24%
  • 66.
    What will happento the stock price next year? Actual Price: $57,94 Actual Price: $154,81 Median Target $66,00 $173,00 High Target $72,00 $198,00 Low target $59,00 $135,00 13,9% 24,3% 3,5% 11,7% 27,9% (12,8%) Price is expected to rise by 13,9% and the worst scenario expected is an increase of 3,5% so the expectations are good Worst expectations than those of CC. Price is expected to rise by 11,7% and the worst scenario expected is a decrease of 12,8%.
  • 67.
    CORRELATION COEFFICIENT Time WarnerCable 0,4080 DIRECTV 0,7730 TWX 0,8710 Disney 0,9248 S&P 0,9599 Very little correlation. This is because TWC prices are ‘artificially’ set because of the merger. Comcast sets the prices. High correlation. Comcast prices move along with the rest of the market.
  • 68.
    Altman Z-score Z =1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + 0.999T5 T1 = Net Working Capital / Total Assets T2 = Retained Earnings / Total Assets T3 = Earnings Before Interest and Taxes / Total Assets T4 = Market Capitalization / Total Liabilities T5 = Sales/ Total Assets Zones of Discrimination: Z > 2.6 -“Safe” Zones 1.11 < Z < 2.6-“Grey” Zones Z < 1.1 -“Distress” Zones
  • 69.
    Altman Z-score (in $Millions) 2013 2012 2013 2012 Net Working Capital -4837 3277 -3082 -448 Total Assets 158 813 164 971 48 273 49 809 Retained Earnings 19 235 16 280 -55 363 EBIT 13 689 14 130 4 591 4 942 Market Capitalization 136 421 100 050 39 024 29 935 Total Liabilities 106 798 98 177 41 326 42 526 Sales 64 657 62 570 22 120 21 386 Z-score 1,59 1,43 1,26 1,18 7 %11%
  • 70.
    Components: 2013 2012 20132012 Z-score in 2013 year while only one factor changed %Change of Z-score caused by one component while others are unchanged Z-score in 2013 year while only one factor changed %Change of Z-score caused by one component while others are unchanged Net Working Capital / Total Assets -0,030 0,020 -0,064 -0,010 1,2 1,37 -4,2% 1,11 -5,7% Retained Earnings / Total Assets 0,121 0,099 -0,001 0,007 1,4 1,47 2,2% 1,17 -0,6% EBIT / Total Assets 0,086 0,086 0,095 0,099 3,3 1,44 0,1% 1,16 -1,4% Market Capitalization / Total Liabilities 1,277 1,019 0,944 0,704 0,6 1,59 10,8% 1,32 12,2% Sales/ Total Assets 0,407 0,379 0,458 0,429 0,999 1,46 1,9% 1,21 2,8% Z-score 1,59 1,43 1,26 1,18 COMCAST's Z-score drivers TWC's Z-score driversComcast TWC Weight of components: Altman Z-score: Components Analysis V% V% Net Working Capital -248% 588% Total Assets -4% -3% Retained Earnings 18% -115% EBIT -3% -7% Market Capitalization 36% 30% Total Liabilities 9% -3% Sales 3% 3% Market price per share went up 39,1 % Market price per share went up 39,4 % Main Driver « The lowest weight but the stronger influance on Z-score while other componensts are unchanged»
  • 71.
    Market price per share Netliquidation per share LV/MV 2013 51,97 -5 -9% 2012 37,36 0,85 2% 2013 2012 (in $Millions) Coefficient Balance Sheet Bankruptcy Balance Sheet Bankruptcy Coefficient Balance Sheet Bankruptcy Balance Sheet Bankruptcy Cash And Equivalents 1 1718 1718 10951 10951 1 525 525 3304 3304 Short-Term Investments 0,9 3573 3216 1464 1318 0,9 0 0 150 135 Accounts Receivable 0,75 6376 4782 5521 4141 0,75 954 716 883 662 OtherCurrent Assets 0,7 2408 1686 2055 1439 0,7 665 466 540 378 PROPERTYPLANTANDEQUIPMENT, NET 0,8 29840 23872 27232 21786 0,8 14255 11404 14004 11203 Goodwill 0 27098 0 26985 0 0 3196 0 2889 0 OtherAssets 0,5 11107 5554 13559 6780 0,5 1313 657 649 325 OtherIntangibles 0,7 76693 53685 77204 54043 0,7 27365 19156 27390 19173 TOTALASSETS 158813 94512 164971 100456 48273 32922 49809 35180 Current Liabilities 1 18912 18912 16714 16714 1 5226 5226 5325 5325 NetCash 139901 75600 148257 83742 43047 27696 44484 29855 Long-term liabilities 1 87886 87886 81463 81463 1 36100 36100 37201 36100 Liquidation Value 52015 -12286 66794 2279 6947 -8404 7283 -6245 Common Shares Outsatnding 2625 2625 2678 2678 288 288 308 308 Net liquidation pershare ($) 20 -5 24,94 0,85 24 -29 24 -20 2012 2013 Bankruptcy: Liquidation Value Analysis The liquidation value of a firm is negative, he firm's debt exceeds the market value of assets The liquidation value of a firm is negative, he firm's debt exceeds the market value of assets Market price per share Net liquidation per share LV/MV 2 013 136 -29 -22% 2 012 97 -20 -21%
  • 72.
    Weighted average costof capital Z =E/(E+D)*Cost of equity+D/(E+D)*Cost of Debt*(1-Tax Rate) WACC 7.64 % 7.45% ROI 10.86% 9.22% Comcast Corp's weighted average cost Of capital is 7.64%. Comcast Corp's return on invested capital is 10.86%. Comcast Corp generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Time Warner Cable Inc's weighted average cost Of capital is 7.45%. Time Warner Cable Inc's return on invested capital is 9.22%. Time Warner Cable Inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Generally it t costs more COMCAST than TWC to raise the capital needed for the investment
  • 73.
    What is happeningin MEDIA industry now? HOTRUMORS:Apple Collects 15%of Revenue GeneratedFromHBONOW andOtherApple TVAppsHOTNEWS: Comcast Says It’s Not Talking to Apple About Apple TV, Because Apple Hasn’t AskedHOT NEWS: Watch Out, Comcast: Apple May Soon Launch a Live TV ServiceApple TV isn't aworry for Comcast -yet
  • 74.
    Comcast-TWC Merger CalledOff Comcast announced on the 23rd April that its merger agreement with Time Warner Cable and its related transactions agreement with Charter Communications, Inc. have been terminated. The merger, which would have made the combined entity the largest pay-TV operator in the U.S., had garnered a lot of negative attention since it was announced in February of 2014. FCC Chairman Tom Wheeler issued a statement on the latest developments, which made it clear why he was opposed to the merger. It was the potential power that the combined entity would have yielded in the high speed internet market that worried him the most.

Editor's Notes

  • #5 Comcast and Time Warner Cable are running in the same industry (media) and the same sector (communications). The name of Comcast and Time Warner Cable use on market are CMCSA and TWC, respectively. Market Capitalization of Comcast is 3,6 times bigger than Time Warner Cable! Comcast also beats Time Warner Cable in the numer of employees. Comcast’s team is 2,6 times bigger than Time Warner Cable team.
  • #6 Comcast: Ralph Roberts in conjunction with his two business partners, Daniel Aron and Julian A. Brodsky, purchased American Cable Systems as a corporate spin-off from its parent, Jerrold Electronics,  for US $500,000. At the time, American Cable was a small cable operator in Tupelo, Mississippi, with five channels and 15,000 customers. The company was incorporated in Pennsylvania in 1969, under the new name Comcast Corporation. Time Warner Cable: The foundation of TWC is more complicated. Let’s have a closer look at it at nect slide, but generally we can state that Comcast is „older” than Time Warner Cable.
  • #7 In 1968 was founded American Television and Communications (ATC) planting the roots of today’s TWC. In 1973 Time Inc. acquires 9% of ATC (and, five years later, agreed to acquire 100% of the company); Warner Communications forms Warner Cable. In 1989 the merger of Time Inc. and Warner Cable announced, later to become Time Warner Inc. In 1992: ATC and Warner Cable become Time Warner Cable; NY1 News is launched in New York City.
  • #9  The leaders of Comcast and Time Warner Cable are in similar age altgough Rober D. Marcus is younger. He is younger in age and he is also „younger” in experience of work in TWC at the position which Brian L.Roberts holds in Comcast. .
  • #34 Comcast’s sales were around 2,9 times bigger than TWC’s sales, it means that these 2 companies are of comletely different size (Comcast’s Revenue is of a significantly larger size than TWC’s). Comcast’s sales rose by 3,3% and its Net Income rose by 9,9%. At the same time TWC’s sales rose by similar percent, it was 3,4% but its Net Income fell by 9,3%. To understand these changes let’s look at both companies’ Total Costs. TC are the difference between Sales and NI. Comcast’s TC rose slightly by 2,6%.The main drivers of this 2,6% increase in TC was 1,3% drop in Cost of Revenue and 3,2% increase in TOE. As we can see, Comcast’s sales rose faster than its TC, and that’s why its NI rose faster than sales – ROS is going to rise. Now let’s look at TWC’s TC - they rose by 4,9%. This increase in TC is mainly due to an 5,1% increase in Cost of Revenue and 2,6% increase in TOE. TWC’s TC rose faster than its sales, that’s why its NI fell – ROS is going to fell.
  • #35 In both analyzed years Comcast’s Cost of Revenue as a percentage of Total Revenue was higher than TWC’s, that’s why Comcast’s Gross Margin % was lower than TWC’s (the differences were 3,2 % points in 2012 and 1,2% point in 2013). High Gross Margin is favorable, so TWC at this point was doing better than Comcast. What’s important, Comcast has managed to reduce its Cost revenue as % of Total Revenue by 1,5% point, so its % Gross Margin increased by the same %. At the same time TWC’s Cost of Revenue as a percentage of Total Revenue inceased by 0,5% point, that’s why its % GM decreased by the same %. It indicates that Comcast had better Cost of Revenue management (better controlls the growth of expenses.) In both companies the position which had one of the biggest share in Total Revenue was TOE . TOE represented 48,6% of sales in Comcast and 50,1% in TWC. Due to the fact that Comcast’s TOE as a percentage of sales were 1,5% point lower than TWC’s, Comcast’s Operating Income as a percentage of Total Sales was 0,3% point higher than TWC. Comcast’s Operating Income was 21%of Total Sales, while TWC’s 20,7%. Now, let’s look at both companies’ NI. Comcast’s NI was 3,8 times bigger than TWC’s. In addition Comcast’s NI had bigger share in its Sales (10,5%) than TWC’s (8,8%). It other words it meant that Comcast’s ROS was higher, Comcast’s sales were more profitable.
  • #36 Overall, Comcast generated rather steady revenues and NI in each quarter of a year, except 3rd Q of 2012. In this quarter Revenue and NI were temporarily boosted by London Olympics (that’s why in 3rdQ12 Revenue as a % of Annual Revenue was 2,1% higher than in 2nd, and NI 12,4% higher). At the same time TWC’s Quarterly Revenue represented in each Q of a year min 24%, max 25,6% of Annual Revenue, so they were even more steady than Comcast’s Quarterly Revenue. TWC’s NI in 3rd Q of 2012 was also boosted by London Olympics, 3Q2012 NI as a % of Annual NI was 16,5% higher than in 2nd Q. What’s more, 3Q benefited also from the strong results of the July 2012 movie "The Dark Knight Rises” (cost $250 million, brought in nearly $1.1 billion globally).
  • #41 Both companies had positive operating CF (operating inflow). Camcast’s OCF was around 3 times bigger than TWC’s OCF. In both companies the biggest drivers of OCF were: NI (representing 46,7% of Comcast’s OCF, 40,2% of TWC’s OCF) and Depreciation and amortization (representing 53,9% of comcast’s OCF and 67,5% of TWC’s OCF). Concerning investing activities, both companies had outflow, Comcast’s investing outflow was 3,5 times bigger than TWC’s. Negative ICF was mainly due to huge capital expenditures (Comcast’s Cap Exp represented 71,7% of its OCF, TWC’s 72,6%). Second important point to be mentioned is the increase in Goodwill. Comcast’s goodwill increased because Comcast acquired GE’s 49% remaining common equity interest in NBCUniversal Holdings for approximately $16.7 billion. TWC’s goodwill increased because TWC completed its acquisition of DukeNet for $572 million in cash (including the repayment of debt), net of cash acquired and capital leases assumed. Speaking of financial activities, both companies had financial outflow, Comcast’s was 2,9 times bigger than TWC’s. The financial outflow was mostly due to high dividends paid (Comcasts represented substantial 26,4% of OCF, TWC’s 56,3%). In total Comcast had a cash outflow of $9233 and TWC an outflow of 2779 (Comcast’s outflow was 3,3 times bigger).
  • #59 Comcast: Ralph Roberts in conjunction with his two business partners, Daniel Aron and Julian A. Brodsky, purchased American Cable Systems as a corporate spin-off from its parent, Jerrold Electronics,  for US $500,000. At the time, American Cable was a small cable operator in Tupelo, Mississippi, with five channels and 15,000 customers. The company was incorporated in Pennsylvania in 1969, under the new name Comcast Corporation. Time Warner Cable: The foundation of TWC is more complicated. Let’s have a closer look at it at nect slide, but generally we can state that Comcast is „older” than Time Warner Cable.