Comcast (CMCSA 1.29%) has had a confusing year. The company lost its bidding war with Walt Disney (DIS 2.46%) for Twenty-First Century Fox's (FOX +0.00%) film and entertainment television assets, but it succeeded in its effort to buy European cable operator Sky PLC (NASDAQOTH: SKYAY).
The company also experienced a deterioration in its core cable business, but offset those pay-TV subscriber loses with gains in broadband. These challenging and complex results left investors unclear about what's next for Comcast. That's likely why its shares -- which closed 2017 at $39.23 -- stood at $39.42 at market close on Nov. 29.
Cord cutting has picked up the pace with more consumers dropping cable. Image source: Getty Images.
Uncertainty reigns
With its purchase of Sky, Comcast acquired a business in Europe that looks a lot like its core U.S. cable operation. The question is whether it paid too much -- just under $39 billion for the 61% of the company it didn't own previously.
The deal brought the debt on Comcast's balance sheet to somewhere in the neighborhood of $100 billion. That's a big number, but not a scary one if Sky continues to operate as it has been. The worry is that while cord-cutting hasn't become a serious trend yet in Europe, there's no reason to believe it won't eventually. Nor is the pattern it make take in any way clear: Cable subscribership could drop precipitously and soon, or the trend, when it develops, could take many years to gain steam, as it did in the U.S.
Cord-cutting continues to become a bigger issue for Comcast domestically. It lost 336,000 U.S. cable customers through the first three quarters of 2018, though it offset those declines by gaining about 1 million net new broadband subscribers. That's good math, but there are signs that the pace of cord cutting has accelerated, and while that of broadband growth has slowed.
Investors are also perplexed by the question of how to factor the purchase that Comcast didn't make into its value. When Disney -- a key rival -- gained Fox's entertainment assets, it grew stronger, with more intellectual property (IP) it can exploit across films, TV, its planned streaming service, and its theme parks. On the other hand, Disney did wind up pay a much higher price than it planned to for that IP.
Still, the result left Comcast in a weaker position when it comes to streaming. Its own IP is strong, but probably not strong enough to allow it to launch a rival to Disney's service, which in itself is an attempt to take on Netflix.
Based on its deep catalog of intellectual property and broad array of assets, Comcast will probably be able to deal effectively with whatever direction the pay-television business takes. It's hard to know where the bottom is for U.S. cord-cutting, or when it will spread to Europe. It's also tough to predict what the Disney/Fox deal will ultimately mean for the industry, or to Comcast's stake in Hulu.
Investors had reason to feel a bit perplexed by Comcast in 2018 -- its current chapter has yet to fully unfold. The next year will probably provide some clarity for the cable giant, and there may be other acquisitions or sales to come -- though there's nothing as attractive as Fox or Sky in play.
