Comcast Is on the Wrong Side of the Long-Term Future

Comcast (NASDAQ:CMCSA), the cable giant that also owns NBCUniversal, was feeling a lot like its viewers Election Day. Worried, but hopeful about the future. People who hold Comcast stock may feel the same way.

Comcast (CMCSA) sign on the Comcast regional headquarters in St. Paul, Minnesota.
Source: Ken Wolter / Shutterstock.com

Comcast shares are trading at $44, about 2% below where they started the year. They fell going into earnings Oct. 29 and kept falling before a recent bounce. Most of those earnings numbers were not good. Earnings were down 27%. Revenue was down 5%.

Comcast’s commentary, however, was upbeat:

  • The company added 633,000 internet customers during the quarter. (But net customer additions were 566,000, meaning it lost 67,000 cable subscribers.)
  • The Peacock streaming platform drew 22 million sign-ups. (But that’s nothing compared to Netflix (NASDAQ:NFLX) or Walt Disney (NYSE:DIS) streaming additions.)
  • Sky TV had a good quarter. (Oh, you’ve got your own DirecTv? AT&T (NYSE:T) says hi.)

Going the Last Mile

It’s easy to be cynical about Comcast, but it does represent the last mile of the internet for millions.

Comcast has a market cap of $192 billion, on $108 billion of 2019 revenue. The stock also pays out a dividend of 23 cents per share, yielding 2.2%.

It’s the internet service, launched starting in the 1990s, that is keeping that dividend alive. This should have been the company’s biggest summer ever. But the pandemic put off the Olympics, it killed the movie theater business, and it closed the Universal Studios parks.

What those who are bullish on the company argue is that this was the low point. Tomorrow is another day, and it should be better. CNBC had an upbeat report on the third quarter, noting that it beat lowered estimates. CNBC is owned by Comcast.

But the theme parks should re-open next year and at least break even. Once sport returned, Sky began making money again since it’s the only place to watch the English Premier League. Comcast is now trying to do the same with Peacock, showing the best Premier League games only on its paid tier.

Comcast is also testing equipment that will let it deliver 1 GBPS cable, both uploads and downloads. (It’s a test, not being sold yet.) Streaming ads could also be more targeted than TV ads, thus more profitable.

The Bear Case

Germany’s Commerzbank isn’t buying it. The bank sold its shares during the third quarter. Instead, activist investor Nelson Peltz took a position, and he could soon start agitating for change to make him go away.

Despite the happy talk NBC Universal is going through layoffs, with as many as 300 losing their high-paying jobs. Add theme park layoffs and you’re talking about $700 million in “restructuring” charges, as they’re called. “We have an obligation as our revenue moves down to adjust our cost base,” NBCUniversal CEO Jeff Shell told Deadline, a trade paper.

More layoffs will come in 2021 if results don’t pick up. Comcast thinks that’s just what will happen next year, as the pandemic eases, the parks open back up, and the Olympics finally happen.

The Bottom Line

If this really is the bottom, Comcast is a cheap stock and a buy. It’s priced at less than 17x some bad quarterly earnings. The yield is attractive with 30-year bonds still paying just 1.65%.

But cord-cutting is continuing. NBC can still be “paid” on “skinny bundles” like YouTube TV Premium from Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), but total TV ad revenue remains flat.

In other words, big internet companies are still coming for Comcast. Comcast stock may be undervalued in the near term. But Comcast is still on the wrong side of the long-term future. Speculators and traders can buy it, but long-term investors shouldn’t.

On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear,  available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/comcast-stock-wrong-side-long-term-future/.

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