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Chris Hill: We've got the latest in entertainment, airlines, and entertainment. I know I said it twice, it's just that show today. Motley Fool Money starts now. I'm Chris Hill joining me today, Motley Fool Senior Analyst Tim Beyers. Thanks for being here.
Chris Hill: Let's do the show so you can get fully caffeinated. We're going to start with Southwest Airlines, and let me just say that anyone who flew Southwest over the holidays or knows anyone who flew Southwest over the holidays, it's probably not surprised by the fact that in the fourth quarter, Southwest Airlines posted a loss of $220 million because of the utter cluster. That was that airline over the holidays and they're trying to right the ship. But the results are the results, Tim and this can't be a surprise to anyone whether they flew Southwestern.
Tim Beyers: No. Southwest should count itself lucky that it's not paying for trauma therapy for some of these people. To be fair, 17,000 flights or to be more specific, 16,700 flights canceled. Now, we know that numbers are bad. The fourth-quarter loss was compared to a $68 million profit during the same period in 2021. The revenue of 6.17 billion was up more than 22 percent. Southwest has a more fundamental problem. Its systems and the system failures that we saw helped cause some real chaos, and if you know anything about airlines, even if you're not using the classic large airline hub-and-spoke system, which Southwest does not. It's a point-to-point airline.
Still, when flights start getting canceled, the chaos backs up and things back up very, very quickly and that's what happened here. Now the good news here, Chris, is that Southwest is forecasting better results coming for the current quarter. The booking trends are up and apparently look positive. Projecting first-quarter revenue to be up 20-24 percent over the last year with capacity up 10 percent, and capacity is essentially meaning how many seats we have to sell. Southwest is forecasting that it can handle an increased level of demand, so theoretically that means Chris, that they've invested to fix some of these system problems they have; the fundamental IT problems they have. I think we all hope so because we're going to have spring travel upcoming here. But my message from this Chris is, I think it could have been a lot worse, but these numbers are not surprising.
Chris Hill: It could have been worse, and I think you're absolutely right. To key in on the next thing investors should be watching is, well, what is this spring break season look like for airlines in general, but specifically for Southwest? There's a version of the future where they come out two months from now and update their guidance for the current quarter. But the type of systemic change that needs to happen at this business, it seems like is not going to necessarily happen quickly. If part of the problem here is we have an antiquated booking system that makes it really hard to handle these types of incidents, that's the thing that takes time and money to replace.
Tim Beyers: No doubt, and because there are some calcified systems, airlines have this. Airlines have some hardened systems that are in place. They have labor contracts, they have fuel costs that they do not control. There are some things that are calcified that Southwest has no control over. But to your point, the thing they do have some control over is how they forecast and how they handle those bookings, and how they factor in the changes they need to make to that booking system.
You would hope that the guidance is modest coming into the next quarter, but I would be very cautious here because the things that they don't control, for example, fuel costs, those are unlikely to be going down anytime soon, so I would rather be pleasantly surprised and buy after I'd seen the stock rally a little bit more on business news that actually made me feel good that things were moving in the right direction rather than try to go bottom fishing here. I don't feel good about bottom fishing with Southwest Airlines, Chris.
Chris Hill: Let's move on to Comcast then because fourth-quarter profits and revenue came in higher than expected for Comcast. Peacock, their streaming service is up to 20 million subscribers. Although I will point out with the higher subscriber number, we also saw in this latest quarter higher losses in the Peacock division.
Tim Beyers: Much higher. Revenue increase was up to about six percent to 9.9 billion. That was for the NBCUniversal division, but the Peacock business, the adjusted earnings fell more than 36 percent, and NBCUniversal had a loss and adjusted loss of 978 million. Peacock's losses were extraordinary. Now to be fair, what seems to be happening is NBCUniversal is scaling up that business, investing heavily and I'm sure they had to pay a pretty hefty premium for having broadcast, at least on their Spanish language channels like Telemundo, the FIFA World Cup, and the World Cup was pretty popular and it was an incredible tournament out in Qatar.
But also the Premier League is getting more and more popular. Premier League football over in England is getting more and more popular. I'm sure that contract is going to get more and more expensive. My takeaway on this Chris is, me and the spending that I have on sports ball is going up. I'm going to have to pay a little bit more to watch some sports ball here. But overall, Comcast as a business, I think it's interesting. They did lose 26,000 broadband subscribers during the period and some of that was due to the impact of Hurricane Ian. But their earnings did decline about five percent, but it's certainly not a terrible business. I would say it's a business that is investing. The broadband decline is a little bit concerning. Peacock is going to be the one to watch here, just like with all of these streaming services.
Chris Hill: To be fair to Comcast, Brian Robertson, his team I think have done a good job of forecasting the investments they've been making. This loss is large. This loss is not out of line with what they had previously forecast in terms of the losses they were projecting for Peacock in 2022, and they say that they expect those losses to peak this year. Now, if you and I are sitting here 12 months from now, and that narrative has changed for the worse, then I think what you're talking about gets even more dire for Comcast. But right now, say what you want about the overall business or different divisions within the Comcast Empire. None of this should be a surprise to anybody.
Tim Beyers: No, it shouldn't be, and the signaling here is that as Comcast ramps up these investments, if we follow the signals, Netflix had a price increase and introduced bad tier. Disney Plus has introduced a price increase. It follows that Peacock is going to get more expensive. Maybe at the ad-free tier, maybe they start there and add some additional subscription pricing there. But it wouldn't surprise me if say the ad tier, which is presently 4.99 a month, goes up to say 6.99 a month. It's trending this way. But they have to capture the subscribers first so yes, I agree with you. Brian Roberts has been very clear about the forecasting here and the investment required. But look for Comcast sooner rather than later to start leveraging the footprint that it's growing here. Twenty million subscribers now, the next step is to start raising some prices steadily, maybe not aggressively.
Chris Hill: On NBC watching the playoff football, whatever game was on NBC. Summer Olympics we're a year-and-a-half away and they're already promoting them as they should by the way. Just start signaling that now, and maybe that becomes an opportunity where there's a version of Peacock or maybe it just drives subscribers, or maybe there's a more premium version for people who are hardcore Olympic.
Tim Beyers: There's no doubt that's going to happen. Peacock has a very vibrant, particularly in sports, they hire premium sports programming for the NFL related to Sunday Night Football during the NFL season. They have premium programming for the Premier League. To your point, when they held the Premier League Fan Fest just last weekend they had who? Olympic sprinter, Noah Lyles pick his favorite Premier League football team, so are they promoting the Olympics? Yes. In fact, they are, Chris.
Chris Hill: Netflix added 7.7 million subscribers in its latest quarter. Meaning Reed Hastings is leaving his job is co-CEO on a high note, but it's the streaming giant making some long-term missteps. Ricky Mulvey caught up with the Motley Fool's Catie Peiper to talk about the company's international expansion and its less than forgiving programming strategy.
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