Four years ago, Comcast outbid Fox to buy Sky for $39 billion. The deal is definitely not panning out.
In the third quarter of 2022, Comcast recorded “noncash impairment charges related to goodwill and intangible assets” in the Sky segment. An impairment charge is a write-off, and goodwill basically means the loss of an asset’s value. In simple terms, Sky has proven to be not nearly as valuable as Comcast once assumed.
Comcast blamed the impairments on “an increased discount rate and reduced estimate future cash flows.” Why? “Macroeconomic conditions in Sky’s territories,” Comcast’s army of accountants wrote. In other words, inflation and unflattering currency fluctuations couldn’t have come at a worse time for this particular investment.
“At Sky, our team continues to prudently manage through a difficult and rapidly changing macroeconomic and geopolitical period in the U.K. and Europe,” Brian L. Roberts, Comcast chairman and CEO, said in a statement accompanying the financials.
Better get even more prudent.
Fortunately, Comcast’s CPAs are able to adjust these write-offs out of the adjusted net income and adjusted earnings per share (“adjusted” being the key word there) line items, which are the ones the media generally focuses on. Without that adjustment, Comcast lost $1.05 per share; with it, shareholders earned 96 cents for each share of stock they own. That’s a significant swing. On an overall basis, the company’s net loss with the write-down was -$4.6 billion; with it, Comcast swung to a healthy profit of $4.2 billion.
Those adjustments are highly significant in another way. Wall Street forecast Comcast’s earnings per share (EPS) at 90 cents on revenue of $29.65 billion, according to a consensus compiled by Yahoo Finance. With the massive Sky write-off, Comcast was able to beat the earnings estimate; it topped on revenue as well with $29.85 billion overall. The adjusted earnings increased 10 percent (adjustments are the best, aren’t they?) from the third quarter of 2021, though the revenue ticked down 1.5 percent.
Sky’s revenue gives a sense of just how badly the overseas currencies are performing. While the topline number sunk nearly 15 percent, on a constant currency basis revenue was basically flat with the same quarter last year. The British satellite broadcaster’s business helped itself a bit by decreasing capital expenditures (funds used for physical assets, like buildings or equipment) by nearly 40 percent.
Overall, Sky’s operating costs decreased 11.5 percent, but unfavorable exchange rates mean expenses rose 3.5 percent on a constant currency basis. Sky’s EBITDA (earnings before interest, taxes, depreciation, and amortization) sunk nearly 28 percent, or -15.5 percent excluding the currency part of the problem.
That all sounds really bad, but it’s not wholly unexpected. In a Thursday morning note to investors, Wells Fargo applauded the EBITDA coming in ahead of analysts’ expectations. And Sky’s revenue was just 3 percent shy of forecasts. Could be worse.
Overall, Wells Fargo called Q3 a “solid operating quarter” for Comcast. NBCUniversal outperformed estimates and cable did what it needed to do.
As far as Peacock goes, Comcast didn’t have much to say beyond the half billion-plus loss it attributed to the struggling streaming service. Comcast reported Peacock crossed 15 million paid subscribers in Q3, but we already knew that.