Summary
- Comcast has launched Peacock to offset the decline in its cable business.
- Rise in demand for broadband provision is a strong growth factor going forward.
- The stock currently trades at a 4% discount to fair value.
Comcast (CMCSA) has had to contend with the problem of cord-cutting due to cable television becoming progressively obsolete. However, broadband provision is not an area where obsolescence is a concern, and it is here that Comcast's value as a prospective investment can be seen.
The issue that Comcast has to face is one that prospective investors must face up to as well, and they were issues before COVID-19 hit. The cable industry is in decline generally, and has been for some time. Digital media, social media, streaming services and the proliferation of mobile technology have all contributed to cable's decline. In the first quarter of 2017, America's largest cable TV providers lost 410,000 subscribers - by contrast, in the final quarter of 2017, Netflix (NFLX) gained 8.3 million subscribers.
The trend has been aggravated by the coronavirus, as Q1 2020 has seen not only households cutting the cord, but also bars, hotels and restaurants which were not able to open. During this quarter, Comcast saw a loss of 409,000 customers, more than half the number it lost throughout all of 2019. Not that Comcast was the only affected provider: DISH Network (DISH), for example, lost 413,000 in Q1 2020. However, it is clear that the pandemic has merely accelerated a trend that was occurring anyway. For the owner of NBC Universal and the European Sky Group, such a trend is hardly welcome.
Comcast has launched Peacock to offset the decline in its cable business. Image courtesy of the Washington Post.
However, Comcast is not Eastman Kodak (KODK) - the firm recognizes the trend and is adapting accordingly. The launch of Peacock, Comcast's own streaming service, is an acknowledgement of the trend from cable to streaming. Peacock has been a beneficiary of the coronavirus pandemic, as most people are stuck at home and thus streaming video more frequently as a result.
Streaming in general rose 85% in the first three weeks of March, according to Nielsen, and again, this is a case of the pandemic aggravating the trend - by February 2020, streaming use had doubled in less than two years. In short, it is a good time for an established firm like Comcast to launch its own streaming service, though it has been careful to temper expectations by projecting 30-35 million U.S. viewers by 2024.
