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Cord-Cutting Headwinds Make Comcast Stock Increasingly Vulnerable

Two out of three of Comcast’s (NASDAQ:CMCSA) main businesses are rapidly deteriorating. And the one business that’s growing looks extremely vulnerable to ruinous competition. As a result, investors should sell Comcast stock.

Cord-Cutting Headwinds Make Comcast Stock Increasingly Vulnerable

Source: Todd A. Merport /

Comcast’s fourth-quarter results and comment by its CFO indicate that its video business and its NBC unit are indisputably deteriorating.

Specifically, last quarter the company lost 149,000 net video subscribers, bringing its total net video subscriber losses for the full year to 733,000. Moreover, the company’s CFO, Michael Cavanaugh, warned that its video subscriber losses would accelerate this year due to the company’s planned rate increases and continued cord-cutting.

I believe that raising prices for cable subscribers is the wrong road for Comcast to take, as such increases will ultimately drive many more customers to cut the cord. Accelerating cord-cutting, in turn, will not only ultimately cause the results of the company’s cable business to deteriorate further and faster, but will ultimately prove to be quite harmful to its NBC unit and its cable advertising business.

Raising cable rates could also increase the likelihood of the company’s broadband internet business facing tough competition in the medium term.

A Closer Look at Comcast

Speaking of the NBC unit, its revenue sank 2.6% year-over-year and its EBITDA tumbled 4.7% YOY. The EBITDA of NBC’s cable networks fell 1.4% YOY, driven by subscriber declines and higher programming costs.

Distribution revenue, which was also hurt by subscriber losses, was unchanged YOY. Due to the softening economy, NBC’s results are likely to meaningfully weaken as its ad revenue drops significantly.

Comcast’s overall Q4 results weren’t too impressive, as its revenue was unchanged, excluding one-time items, versus the same period a year earlier. Meanwhile, its free cash flow slowed to an annualized $10 billion, versus the $13.4 billion it reported for all of 2019.

Given the first-mover advantage of Netflix and Hulu in TV streaming for adults, I don’t expect NBC’s streaming offering to gain a big foothold in the U.S.

Even if the streaming service, called Peacock, defies my expectations and quickly gets 50 million subscribers, Comcast will be in the same boat as Disney; its streaming service will be losing many tens of millions of dollars even as the profits of its broadcast and cable TV channels sink.

New Internet Competitors Look Poised to Emerge

It’s clear that the only thing that’s keeping Comcast’s results from sinking is its broadband internet business. The company’s residential and business high-speed internet services both surged 8.8% YOY, while its overall cable revenue increased just 2.6% YOY.

For the last five years, I’ve thought that new players using new technologies were poised to break into the broadband cable market and charge much less than the existing players. I believed that Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) Google Fiber or its Project Loon could do the trick, but those services have both run into problems and haven’t gained much traction.

But now a company, SpaceX, run by a man named Elon Musk, is looking to enter the space (pun intended).  Specifically, SpaceX is reportedly looking “to build up a global broadband internet network in low Earth orbit,” according to Technology Review. If anyone can disrupt the broadband internet sector, it’s Musk, the man who disrupted the global automotive sector. And the disruption may begin very soon; SpaceX’s satellite internet service is expected to launch this year.

But SpaceX isn’t the only one looking to provide internet service from space; several other companies, including Amazon (NASDAQ:AMZN), are also planning to do so.

It makes sense that it would be much cheaper for companies to provide internet service from space than via cable. That’s because there probably won’t be installation costs for satellite-based broadband services.

As with Sirius XM’s (NASDAQ:SIRI) satellite radio service, consumers who want to get internet service from space will just buy a receiver and call the company to get a signal sent to them. Sirius’ low installation cost is probably what enables it to be profitable, even though it charges only around $15-$20 per month for most of its services and has to pay music royalties and its on-air talent.

So satellite-based internet providers will probably be able to charge $10-$15 per month and still be extremely profitable. Consequently, those providers would clearly decimate Comcast’s financial results.

The Bottom Line on Comcast Stock

Comcast’s video and NBC businesses are weakening meaningfully due to cord-cutting, and that trend will only intensify going forward. Meanwhile, Elon Musk and other satellite-based internet providers look poised to offer much cheaper internet service very soon. Given these points, investors should sell Comcast stock.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he did not own any shares of the aforementioned companies.

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