A decade ago, after Comcast (NASDAQ:CMCSA) bought NBC Universal from General Electric (NYSE:GE), then-hit show 30 Rock satirized it as a tired, aging, and lazy outfit called Kabletown. Comcast hasn’t changed much in a decade. It’s still benefitting from its duopoly (a monopoly in many places) with phone giants AT&T (NYSE:T) and Verizon (NYSE:VZ) on wired broadband. It still has a negative reputation, as does the entire cable industry. CMCSA stock has adjusted accordingly through the years as Comcast takes a step forward followed by a step back.
But the rise of streaming has investors excited again. CMCSA stock is up almost 50% in the last year. It gained a positive divergence with the S&P 500 average after earnings, up 8.1% in a month, while the market has been flat. CEO Brian Roberts described the fourth quarter earnings as “outstanding” even though revenue, earnings and free cash flow were all down year-over-year.
What’s the excitement about?
Streaming and Broadband
The excitement comes down to two words – streaming and broadband.
Comcast is no longer seen as a cable company. It’s an internet service provider, one of the biggest. It has technical advantages over telephony, which I’ve been writing about for nearly a quarter-century. Bandwidth can be added cheaply in a variety of ways.
But bandwidth is nothing without something to use it. That something is streaming TV, which is fast replacing the old cable model. Instead of subscribing to a bundle of channels through the cable provider, consumers buy packages of content delivered to their TVs over the internet. They pay the programmer directly.
CMCSA stock had been a victim of this trend. Now investors see it as a beneficiary. Comcast’s streaming entry is called Peacock. Available in ad-free, paid-with-ads and a limited free version, it had drawn 33 million signups by the end of 2020. It also lost $914 million.
In addition to Peacock, Comcast has a streaming platform called Flex. You might compare it to the Amazon (NASDAQ:AMZN) Fire Stick, Roku (NASDAQ:ROKU) device or Apple (NASDAQ:AAPL) TV. Flex is free to Comcast’s broadband customers, and 3 million have been deployed. The company said this is cutting its churn, customers who switch internet services in search of lower prices.
Making streaming part of its own business model means the data caps it announced in December, to universal outrage, may no longer matter. The caps have been put off until next year and, if all goes well, may never come into place.
The Reopening Trade
While Comcast cable and streaming services kept people home during the pandemic, the company may also benefit from the economic reopening.
That’s because Universal’s movie studio and theme parks were part of the original NBC Universal deal. Comcast said nearly $3 billion in profit fell to $500 million in losses “in a flash” from the pandemic, but much of that may come back soon.
Unlike AT&T, which pushed all its Paramount movies into streaming, Comcast has kept the theater exclusive alive. This not only means it benefits from theaters reopening but could also benefit from the industry’s talent preferring theaters to TV.
Comcast may also juice earnings with Xfinity Mobile, a wireless service riding on its customers’ WiFi connections that is now being sold to small businesses. But any talk of it becoming a 5G power seems to have died after it failed to bid in the recent spectrum auction.
The Bottom Line on CMCSA Stock
Investors hope that Comcast’s streaming and broadband gains will offset cable losses. It has its own streaming service and can re-sell others. It has pricing power over Internet access fees.
But whether that means overall growth remains to be seen. It should but that’s speculative. Meanwhile the $1 dividend is yielding just 1.75%, barely competitive with a government bond. There may indeed be gains from here, but they will come grudgingly. And they may not outperform those of the general market.
At the time of publication, Dana Blankenhorn was long AMZN, AAPL and T.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
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