Comcast (NASDAQ:CMCSA) gave up its pursuit of 21st Century Fox (NASDAQ:FOXA) assets, and will focus on trying to buy Sky (OTCMKTS:SKYYY). Comcast stock rose 3.3% on the news in early trading July 19.
The move, announced shortly before trading opened,, was made inevitable by the Justice Department decision to appeal the AT&T (NYSE:T) purchase of Time Warner.
Comcast’s acquisition of Fox assets would be similar to the AT&T-Time Warner deal, a network operator buying a programmer, while Walt Disney (NYSE:DIS) lacks those last-mile assets.
What Comcast is now telling shareholders is it wants to become even-more focused on the last mile through Sky. It recently raised its bid for Sky to $34 billion. While Sky is a direct broadcaster, like the floundering DISH Network (NASDAQ:DISH), it also has a streaming service in both Europe and Asia.
New Markets and Comcast Stock
Fox has its own bid for Sky, and British regulators have approved it, although Comcast’s offer is $1.5 billion higher. Fox already owns 39% of Sky.
While Disney could wind up with both Sky and the Fox assets, there is a growing belief that it will cede Sky to Comcast. It has said it won’t raise the bid by Fox even while it is lower than Comcast’s.
The Justice Department has already approved Disney’s bid for the Fox assets, provided it divests of 22 regional sports networks.
The decision would hasten the Disney closing, but also provides Comcast the ability to become more competitive with Disney’s ESPN, if it can win those networks. Sky controls most of the rights for the English Premier League, while Comcast owns the U.S. rights through NBCsn.
Sky also has a news channel, which Comcast would add to its NBC, MSNBC and CNBC holdings, making that more competitive with AT&T Time Warner’s CNN.
Less Leverage
By giving up its pursuit of the Fox assets, Comcast also has more financial firepower for Xfinity Mobile, the cellular network it announced last year. The service has a half-million customers and Comcast is expected to deliver an update on it when it announces its second quarter earnings July 26.
Comcast had most recently bid $65 billion in cash for Fox, which would have dramatically increased its debt to assets ratio. Getting Sky will also increase its debt, just not by as much.
Failing to win either prize might leave Comcast with the financial wherewithal to go after DISH, which has a market cap of just $14 billion and valuable wireless spectrum that could make Xfinity Mobile competitive with AT&T, Verizon Communications (NYSE:VZ), and a possible T-Mobile US (NASDAQ:TMUS) combination with Sprint (NYSE:S)
Analysts believe Comcast stock will deliver 61 cents per share, about $2.8 billion, of earnings on revenues of $22 billion, although they’re hoping for 62 cents.
That’s nearly 15 cents out of every dollar of revenue hitting the net income line, more profitability than Alphabet (NASDAQ:GOOGL,) had last year. The build-out of its cable networks, however, means Comcast already has long-term debt of over $63 billion on almost $191 billion in assets.
The Bottom Line on Comcast Stock
While it remains devoted to selling ads against TV programs, and access to TV programs, Comcast says it wants to change the rules of the TV ad game, making it more like the Internet.
It has warned that TV executives have become “entitled,” arguing that its Xfinity X1 service can “own the connected home.”
The problem is that TV ads, like old-style print ads, are sold based on viewer interests. Internet ads are sold based on the viewer’s identity. Customizing TV advertising through Xfinity could make Comcast more competitive with Alphabet and Facebook (NASDAQ:FB), the Internet advertising duopoly.
Moving more programming to mobile networks and the Xfinity streaming service, however, would allow it to create a more Google-like ad model, and this may be the future TV sees.
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 T.
