Comcast Stock Surrounded by Too Much Static (CMCSA)

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After 14 months of work and hefty advisory fees, Comcast Corporation (NASDAQ:CMCSA) had to abandon its mega acquisition deal for Time Warner Cable Inc (NYSE:TWC) back in late April. Now the prize has gone to rival Charter Communications, Inc. (NASDAQ:CHTR) for $55 billion.

Comcast CMCSA Time Warner Cable CMCSA TWCWhile Comcast will still remain the largest cable operator in the U.S., there should still be concerns for CMCSA shareholders.

The fact is that the company needs to engage in massive deals to move the needle on CMCSA stock — the company’s revenues for the latest quarter were a hefty $17.9 billion. And it’s becoming increasingly difficult for the company to participate in such deals.

Regulators Throttling CSMCSA

The regulatory situation is to blame. After all, the reason that CMCSA had to walk away from its offer for TWC was that the federal government was prepared to fight it. The Justice Department made it clear that “it had significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers.”

By controlling roughly half of the broadband market, CMCSA would be in the enviable position to essentially dictate terms for over-the-top streaming services, such as Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN). It would also be at an unfair advantage to promote its own media offerings from NBCUniversal and others.

This is a classic antitrust situation. In fact, it is very similar to Microsoft Corporation (NASDAQ:MSFT) during the 1990s when it had a stranglehold on the core operating system for computers. Because of this, the federal government imposed restrictions on MSFT, which made it tougher to grow as well as to exploit its advantages. The result was that the stock price languished for many years after the late 1990s.

Such underperformance seems to be common for companies that get into the morass of antitrust. Other examples include AT&T Inc. (NYSE:T) and International Business Machines Corp. (NYSE:IBM).

Now it’s true that CMCSA could acquire business outside its core media operations, but that’s a risky game. Acquisitions are never easy — especially when they are not synergistic with a company’s core operations.

In the meantime, there are potential risks to Comcast’s cable business as the competitive environment is becoming more intense. Netflix is getting serious traction and it looks like Apple Inc. (NASDAQ:AAPL) may offer its own streaming service. There are also moves from players like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. to provide customers with “skinny bundles” of video.

In other words, there will be more pressure on CMCSA to be less reliant on full-blown cable packages, which will make it even tougher to keep up the growth.

Yet this is not to imply that the stock is a good short right now. Let’s face it, the company has a diverse platform of media and cable services. And yes, cash flows will continue to be strong. But going forward, there will be more headwinds.

Unfortunately, the typical way of dealing with this — that is, acquisitions — may not be a good option, especially since the federal government seems to be focused on making sure rival services can flourish.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/comcast-stock-cmcsa-much-static/.

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