As recently as even a few years ago, the latest moves by Comcast Corporation (NASDAQ:CMCSA) would likely have been cheered by Wall Street, and Comcast stock was an easy choice.
The cable company, which is increasingly a last-mile Internet service provider competing with AT&T Inc. (NYSE:T), is trying to buy both Sky plc (OTCMKTS:SKYYY) and the entertainment assets of 21st Century Fox (NASDAQ:FOXA) the Walt Disney Co (NYSE:DIS) previously negotiated a price on.
It’s the kind of big money boardroom tussle analysts love, but analysts are waking up to the fact we live in a cloud-based world and are suddenly frightened of the debt Comcast would take on if these deals get done.
Since the start of 2018, in fact, Comcast shares are down over 21%. Disney is also down, by only 6%. AT&T, which is engaged in a court battle to buy Time Warner Inc (NYSE:TWX), is down 16%.
Comcast Stock in a Changing World
What has spoiled these plans for world domination is the fact that we now live in a new world.
In the world of the cloud, Comcast and Disney are going after the wrong fish. Some $27 billion was spent on “hyperscale” data centers, or cloud centers, during the first quarter of 2018 alone.
Most of that money was spent by just five companies, Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT) and Facebook, Inc. (NASDAQ:FB).
Not only are these companies building data centers, but they’re also investing heavily in long-distance fiber cables that link them into cloud networks.
They interchange data with one another through managed service providers like Equinix Inc (NASDAQ:EQIX), effectively bypassing and rendering obsolete the data infrastructure built over the last century by both telecom companies and cable operators.
Companies that have ridden these networks have been raised up into serious competitors to Disney, Fox, and Comcast’s NBC Universal. Netflix, Inc. (NASDAQ:NFLX) is now worth $144 billion, just $4 billion less than Comcast. Google’s YouTube recently drew a $160 billion valuation from Morgan Stanley (NYSE:MS).
Comcast Stock Still Is a Force
The counter argument of Comcast and AT&T, which has angered internet activists drawn to the issue of net neutrality, is that their control over the “last mile” of the Internet and key media assets like CNN, MSNBC and Fox News makes these mega-mergers worthwhile.
That’s not the way to bet. Even if Comcast and AT&T merged with one another, their combined market cap would barely be half that of Facebook, which is now worth $534 billion, while owning neither media nor last-mile assets, just a cloud-based ad network and social network.
Meanwhile, of course, the war goes on.
Comcast has permission to go after Sky, a direct broadcast satellite company with streaming assets. DISH Network Corp (NASDAQ:DISH), a similar company based in the U.S., is worth less than $15 billion, but Comcast is bidding $31 billion for Sky because, reasons.
There are breathless headlines about Comcast spoiling Disney’s efforts at “entertainment dominance” and Comcast is building new storefronts for its customers designed to look like Apple stores.
People go to Apple stores because they like Apple. Comcast is the most hated company in America. It’s like grandma and grandpa are fighting, and the kids are all ROFLMAO.
The Bottom Line on Comcast Stock
The media is looking in the wrong direction. The money knows better.
What Comcast and Disney and Fox, AT&T and Time Warner are engaged in is a sideshow. The real market battle for the future is going on in the clouds. All the companies I just mentioned, taken all together, are worth about $640 billion.
Apple alone was worth $919 billion as the market opened for trade on May 22. Comcast stock just is no longer the sure bet it seemed like in the past.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.
