Six months ago, my wife and I decided to pull the plug on our subscription to Comcast Corporation‘s (NASDAQ:CMCSA) services.
We had grown weary of the high and ever-escalating monthly costs; the often-unpleasant experiences speaking to customer service; the semi-frequent interruptions to our service.
But above all, we just didn’t need the digital television service anymore — not with so many cheaper options available in today’s vast (and growing) streaming-video universe.
We aren’t alone in our cord-cutting.
More than 1.1 million U.S. households ditched their cable television service last year, according to a study performed by the research firm Convergence Consulting. The same number of households is expected to cut the cord this year. Roughly one in five U.S. homes are now cable-free, up from a mere 12% as recently as 2011. That was right around the time Netflix, Inc.’s (NASDAQ:NFLX) streaming video service started to take off. Since then, Amazon Video, Hulu, HBO Now Crackle and many others have sprouted.
The streaming revolution is mostly bad news for Comcast, though it does own a stake in Hulu. Since topping 24 million cable TV subscribers in 2007 and 2008, CMCSA’s subscriber numbers have been in steady decline; it hasn’t topped 23 million since 2009.
Other Businesses Saving Comcast
Despite all that, revenues have continued to grow thanks in large part to CMCSA’s other businesses. Comcast owns NBCUniversal, which owns all the NBC networks (including CNBC, MSNBC, NBC Sports Network, USA Network, Bravo, SyFy, The Golf Channel and others), one of the largest film studios in Hollywood (Universal Studios), the Universal Studios theme parks and, as mentioned earlier, a portion of Hulu. Plus, its high-speed internet business hasn’t suffered much — all those cord-cutters (myself included) still need internet to stream video, and many of them use Comcast to do it.
Earnings have mostly continued to expand as well. With its top and bottom lines growing, Comcast stock has performed quite well — it’s up 17% year-to-date and more than 200% in the last five years, at a time when cord-cutting has accelerated. Lately, however, momentum in CMCSA has come to a screeching halt.
Since making the leap from $61 to $67 in late June and early July, Comcast stock hasn’t managed to break higher, and had a slight dip in late August down to the $64 to $65 range, falling below its 50-day moving average. In essence, the stock hasn’t budged in more than two months.
CMCSA could get a nice bump a month from now, when third-quarter earnings are released. Analysts are expecting a 13% increase in sales, fueled by NBCUniversal’s airing of the Summer Olympics in Rio across all its networks in August.
But that’s a bump that occurs only once every two years. With CMCSA’s movie business struggling of late — film revenue was down a whopping 40% in the second quarter — there’s not a ton on the horizon to get investors excited about the company (though Comcast did announce yesterday that it plans to launch its own wireless cell phone service sometime next year).
NFLX Is a Better Buy Than CMCSA
CMCSA trades at a reasonable 17 times forward earnings estimates, and it does offer a modest-yet-growing dividend, which currently yields 1.7%. And sales are expected to keep growing at a respectable clip for the foreseeable future. But sometimes on Wall Street, image trumps fundamentals. And with every cord cut, Comcast inches closer to becoming a dinosaur in the eyes of investors.
Look, Comcast is not going to become BlackBerry Ltd (NASDAQ:BBRY) overnight. It should be a viable, if unspectacular, company for years to come.
But with its core businesses dwindling, I think there are better places to invest your money over the long- and intermediate-term. Like, say, NFLX.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
