As a long-term investor, paying attention to recent financial releases is not enough to ensure long-term capital gains and dividends. Sure, a company may have posted strong earnings the previous eight quarters, but it doesn't mean it will continue this trend. You've got to pay attention to less tangible information to get a feel for what the future will look like.
Recent consumer reports coupled with increased competition from Netflix (NASDAQ:NFLX) and Verizon (NYSE:VZ) should have Comcast (NASDAQ:CMCSA) investors questioning their position in the stock. In the future, when the average consumer has multiple choices for Internet and cable, Comcast's profits are sure to deteriorate.
Shareholders have benefited
Comcast investors have no doubt done well in recent years. Shares have risen by 280% in the last five years, revenue has risen by a healthy 8% per year and its earnings per share have risen by over 30% per year between 2011 to 2013. Unfortunately, like every disclosure in the world says, past performance is not an indication of future results.
Consumer reports and why they matter now more than ever
Yes, Comcast shareholders have done well over the years but customers haven't. Comcast ranked 15th out of 17 television service providers with notably low ratings for value, reliability, and customer service in the recent Consumer Reports National Research Center's survey.
Due to the lack of competition in the telecom industry over the past decade, many disgruntled Comcast customers had two choices: either suck it up, or don't have cable and Internet.
But now consumers are gaining more options. There have been extreme innovations in content delivery. Now consumers can view a plethora of content through Netflix' streaming service at a fraction of the cost of XFINITY cable. Not only that, various companies including Google (NASDAQ:GOOG)(NASDAQ:GOOGL) are vamping up their fiber optic networks to give consumers an improved Internet and cable experience in more areas of the country.
Google's innovative Google Fiber TV service offers customers over 150 HD channels and tens of thousands of shows and movies on demand. Verizon FiOS offers Internet speeds of up to 500 Mbps and has numerous plans comparable to XFINITY.The most amazing part is, the prices for the new innovative services offered by Google and Verizon are comparable, if not lower, than XFINITY'S services.
And Verizon and Google have scored higher significantly higher in consumer reports than XFINITY. It's logical to assume that a lot of people will switch form Comcast to Verizon and Google over the next few years. The only way Comcast can avoid this is by lowering its prices or stepping its game up in terms of service quality -- both scenarios would result in lowered margins for Comcast.
Right, but that's what the Comcast Time Warner Cable is for, right?
Theoretically, yes. If the Comcast Time Warner Cable deal gets approved, the combined company may be able to lower prices and improve its service quality. But banking on the deal going through is not safe. Especially since on June 24, Senator Amy Klobuchar of Minnesota and Senator Mike Lee of Utah voiced their concerns about the deal and the power it would give the joint company.
What this means for Comcast investors
Pay attention to what consumers think of Comcast. In the short-run, ignoring subscriber's complaints may be very lucrative. However, over the long-run, as other companies expand to new regions and create viable alternatives to Comcast's services, Comcast will either lose subscribers or experience lowered margins if it does choose to finally improve its services.
Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.
Michael Nielsen owns shares of Netflix. The Motley Fool recommends Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.