The content streaming phenomenon can trace its technological roots back to the music industry. But ultimately, internet television is what brought the term to the mainstream. Companies such as Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) pushed the streaming concept to the forefront of mainstream media. And these media stocks have enjoyed great success over the past few years as a result.
Now, almost every media company has seen the future. We have Disney (NYSE:DIS), FuboTV (NYSE:FUBO) and countless other competitors entering the video streaming services fray. That doesn’t even factor-in the streaming versions of the big four networks.
But while many companies have enjoyed great success with the “cord-cutting” movement, the tide is starting to shift. Most of these streaming services have subscription fees or independent contracts. Customers are getting overloaded and confused with all of these streaming options.
If only there was a service out there that could place all these channels in one neat package for a low-cost bundled price! Furthermore, what if this service didn’t have to deal will slow internet speeds, buffering issues, logins and dozens of separate billings arrangements?
Well of course this service has been around for over 50 years and is officially called Multichannel Video Programming Distributor (MVPD). This originally meant cable TV companies, but has since included satellite operators and fiber optic TV offerings from telephone companies.
The cord-cutting phenomenon has certainly hurt TV subscriber growth at these operators. However, most have shown decent revenue and EBITDA growth. The answer why may be somewhat obvious by now. It’s because these cable stocks are where we get our high-speed internet connection to watch all our streaming channels.
Because of the massive streaming clutter out there, I believe the cord-cutting will abate and subscription declines may stabilize, and actually grow in some cases. This will accelerate revenue growth rates for these media stocks well above current expectations:
- Charter Communications (NASDAQ:CHTR)
- Comcast Corporation (NASDAQ:CMCSA)
- DISH Network (NASDAQ:DISH)
- AT&T (NYSE:T)
- WideOpenWest (NYSE:WOW)
- Liberty Broadband (NASDAQ:LBRDA)
- Shaw Communications (NYSE:SJR)
Let’s dive a bit deeper into what makes each of these stand out plays if the cord-cutting movement starts to tone down.
Media Stocks: Charter Communications (CHTR)
Charter is one of the largest pure-play cable companies with over 30 million subscribers in 41 states and primarily operates under the Spectrum brand. Charter could generate over $50 billion in revenues this year along with $19 billion in EBITDA.
Cable companies are typically valued on an enterprise value /EBITDA basis due to the high levels of depreciation making price-to-earnings ratios a somewhat unreliable indicator. Charter trades at a reasonable 6.5x EBITDA.
Charter is still showing revenue growth despite the drop-off in cable TV subscribers. In 2020, core residential revenues grew 5%. If the cable TV subscriber losses abate as I suspect, that number will only accelerate.
One hidden asset that is a big positive is the company’s large Net Operating Loss Carryforwards, which totals $5.3 billion. That means Charter won’t be a cash taxpayer for quite some time.
Based out of Philadelphia, Comcast is one of the largest media companies in the world with over $100 billion in revenues and $30 billion in EBITDA. Customer Relationships, which include television, internet and phone subscribers, increased 5.1% in the fourth quarter of 2020.
Comcast also owns NBCUniversal, which includes cable channels such CNBC and the Golf Channel, broadcast networks (NBC), Universal Studios and theme parks. This segment was negatively affected by the coronavirus pandemic in almost all areas. However, it is expected to come roaring back once things reopen across the country.
Comcast trades at a reasonable 15x estimated 2022 earnings. 2021 earnings are not indicative of the company’s earnings capacity due to the ongoing effects of the Covid-19 pandemic. Comcast’s dividend yield is currently 1.86% after its thirteenth annual dividend increase.
DISH Network (DISH)
Founded by legendary satellite entrepreneur Charlie Ergen in the 1990’s, DISH is the second-largest satellite TV provider in the country with approximately 8.8 million subscribers. The company also owns Sling TV which provides another near-2.5 million subscribers.
Overall revenue growth has been hard to come by in recent years as the fast-growing Sling TV segment has been offset by subscriber declines in the traditional satellite TV market. In 2020, DISH acquired Boost Mobile from Sprint for $1.4 billion providing another diverse revenue stream.
Famously known for its penny-pinching ways, DISH is very profitable and trades at only 11x 2021 estimate earnings per share. DISH is positively levered to the slow-down in traditional pay-TV subscriber losses if it were to occur.
The granddaddy of satellite pay-TV operators with 13 million subscribers has corporate roots that go back to Howard Hughes!
DirecTV was acquired in 2015 by AT&T in a somewhat ill-timed transaction that happened just before the popularity of streaming services took off. On February 24, 2021, AT&T announced it was spinning off DirecTV into a separate company in conjunction with private equity firm TPG Capital.
The specific financials for DirecTV are hard to determine based on AT&T’s segment disclosures, but we do know subscribers are rapidly declining. Still, the company continues to generate significant free cash flow.
It is unclear if the new DirecTV will be a public company or private company.
WOW is a small-cap pure-play cable company with approximately 850,000 customers across the Southeastern and Midwest U.S. It is the sixth-largest cable company in the country. After a lengthy period of private equity ownership, WOW went public in 2017.
Like most cables companies, WOW was able to squeak out some revenue growth in 2020, as the high-speed internet business was able to offset pay-TV declines. The high debt levels are somewhat of a concern as the company’s leverage ratio (net debt / EBITDA) stood at 5.2x at year end.
Despite the stock trading at all-time highs, it’s only a matter of time before the company is acquired by one of the giants in the industry.
Liberty Broadband (LBRDA)
LRBDA is a little more complicated story, which is standard fare if you’re affiliated with the Liberty Media empire with its array of holdings and tracking stocks. Today, the company’s holdings consists of a 29% stake in Charter; 100% ownership of GCI, which is Alaska’s largest cable and telecom company and 100% ownership of Skyhook (formerly TruePosition), which is a global leader in positioning technology.
LRBDA appears cheap on a sum-of-parts basis as the stake in CHTR is worth about $35 billion. However, the total market cap for LRBDA is only $30 billion, thereby assigning negative value to its two other core businesses. Another way to look at it is if GCI and Skyhook were assigned fair value, the look-through price for CHTR would only be $528 vs todays market price of $623.
Shaw Communications (SHAW)
For those that have faith in our Canadian neighbors, SHAW provide cable TV, internet and wireless services to the British Columbia, Alberta, Saskatchewan, Manitoba and northern Ontario regions. As of year end, Shaw has approximately 4.5 million consumer wireline customer relationships, including 1.9 million pay-TV subs, 1.9 million internet subs and 650,000 telephone subs. SJR is also a major cellular provider with 1.9 million wireless customers.
SJR generates strong EBITDA margins in the mid-40% ranges and the stock trades at reasonable multiples of 16x 2021 estimate EPS and 6.5x 2021 estimated EBITDA. The company’s dividend yield is generous at 5.2%.
On the date of publication Tom Kerr did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Kerr, CFA, is an experienced investment manager and business writer who has worked in the investment and securities business since 1994.