Cable and ISP giant Comcast (NASDAQ:CMCSA) beat expectations marginally on revenue and earnings when it reported its fourth-quarter numbers this week, and it boosted its dividend, too. But of course, it's still coping with long-term trends like cord-cutting and the rise of streaming services that are cutting into its biggest sources of revenue. So, where is it headed from here?
In this segment of the MarketFoolery podcast, host Chris Hill and senior analyst Aaron Bush consider the contrasting outlooks for its cable and broadband businesses, the future of the NBC/Universal entertainment unit, the possibilities for its own planned streaming service, and more.
A full transcript follows the video.
This video was recorded on Jan. 23, 2019.
Chris Hill: Alright, let's move on to Comcast. Similar story to IBM, just in terms of the headline. Fourth-quarter profit and revenue doing a little bit better than expected. They raised their quarterly dividend. Shares up 4%. What's your main takeaway when you look at this business at this point in time? In the recent past, there was a good stretch of time where, for whatever customer service issues one may have with Comcast, this was a market-beating stock for a good stretch of time. And the last 18 months, it's anywhere from struggled to just tread water.
Aaron Bush: I think we need to break apart the business a little bit. The main business, which is TV and broadband, it's pretty much as business as usual there. On the traditional TV side, they continue to lose paying TV subscribers, but the loss is shrinking. No surprise there. However, on the broadband side, this quarter, they added over 350,000 customers, and their total revenue there grew 10%.
I think people need to realize that, as much as you may not enjoy dealing with Comcast itself as a customer, this business is here to stay. When you realize that Google Fiber has shut down, Project Loom isn't going anywhere, Facebook's internet drones or satellites aren't going anywhere, SpaceX isn't close to doing anything at scale -- disruption of players like Comcast is a really long ways away. I do think some of the ups and downs that they've experienced have less to do with this side of the business. This side of the business will hold steady.
It's the other side of the business, entertainment, where there are a lot of other moving pieces. There's been a lot of uncertainty on how that will play out. I think this quarter was pretty meaningful in moving in certain directions. This quarter, the acquisition of Sky closed. That's massive. Their NBC Universal segment grew, and guiding for more growth there, which is great. There are hints that they may launch their own NBC Universal streaming service. I don't know how well that's going to do. It obviously can't compete at scale with something like Netflix, but I think it's smart. It'll help them own customer relationships, probably turn to something like what CBS is doing.
And then there's the whole, what are they going to do with their 30% stake in Hulu? What's going to go on there? I don't know. My guess would be, they probably don't like that Disney now owns 60% of it.
Hill: No, I wouldn't think so. [laughs]
Bush: So, they'll probably look to sell, maybe to Disney, and then maybe use the proceeds to invest in their own service. That's what I would think. There's still a lot of uncertainty there. But really, most of this business is still broadband, and they're doing very well in it.
Hill: The streaming service is interesting, and I think you've keyed in on something crucial there: This was almost under the radar. Like, "Oh, by the way, we're launching this streaming service in 2020." But, to your point, I think if they lowball expectations, if they go into it with an eye toward advertising partners, where they just say, "Look, we've got these news properties, we've got the Olympics," I mean, 2020 from an advertising standpoint, it's shaping up to be a lucrative year for this side of the business. If they use the streaming app to essentially enhance the advertiser relationships, I think that sets them up for further growth down the road. But, they have to make sure it works.
Bush: Yeah, I think so. We're seeing a lot of competition, mainly in paid services. People are competing with Amazon Prime, HBO, for paid subscriptions. I think they're smart to lean the other way and do advertising. At some point, people are going to hit the wall of what they're willing to pay. And Comcast with NBC Universal, they have a lot of big shows and brands and sports that they actually can do something interesting there and hold their own. I think it's a question of how much scale they can really succeed at. I don't really know. We'll have to wait and see what their plans are. But I think it's smart that they're doing this. Being connected to Comcast, which is in tons of people's homes around the country, that gives them a great head start.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Alphabet (C shares), Amazon, Facebook, Netflix, and Walt Disney. Chris Hill owns shares of Amazon and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Amazon, Facebook, Netflix, and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.