By some measures, the global coronavirus outbreak couldn't have been more devastating for Comcast (CMCSA 0.38%). The parent company to a movie studio and theme park name Universal, a wide swath of its business has been put on hold, and its NBC unit continues to face a cord-cutting headwind along with a pandemic-induced slowdown in advertising buys. On the flipside, stay-at-home (and work-at-home) mandates may have cemented its broadband business in place with consumers, while a depressed economy could make cheap entertainment like its upcoming Peacock streaming service a smash hit.
Plenty of rough patches are sure to lie ahead. But, for the same reasons Comcast was a healthy addition to portfolios before the COVID-19 contagion raced out of control, the stock's even more of a buy now.
Image source: Getty Images.
Broadband is the right priority
It's regarded as a cable television name, but pay-TV is not a huge chunk of what Comcast does these days. Linear TV service only accounted for about one-fifth of last year's total revenue, while network TV only made up roughly another one-fifth of its business. The other 60% of the top line consisted of movies, amusement parks, broadband service, and Sky's direct-to-consumer operation.
How the revenue mix is changing over time is particularly noteworthy, perhaps now more than ever.
Data source: Comcast Investor Relations. Chart by author.
Yes, traditional television and the cable lines that pipe it into consumers' homes are under attack from all directions. Netflix (NFLX +0.43%) may have led the charge, but it's not alone on the streaming front anymore. NBC's fate largely reflects that of cable television itself. Comcast arguably took too long to recognize and respond to that reality.
Comcast is responding now though, in spades.
The short version of a long story: Comcast is no longer prioritizing the growth of its cable and video entertainment ventures at the expense of profitability. It still intends to offer cable service, as well as fuel its NBC network. But, ever since Comcast's CFO Mike Cavanagh commented last year that the company "will not chase unprofitable video subs," it's been true to his word.
The organization has instead prioritized investments in its broadband infrastructure for 2020 because, as it turns out, that's a more fruitful and flexible customer relationship. Consumers may subscribe to multiple streaming services as well as multiple video conferencing tools, and they can buy such services from a number of players. Their high-speed internet connections ultimately power them all, often without a second thought from consumers.
Underestimated streaming opportunity
Comcast isn't just backing away from an all-out effort to keep its cable TV and network businesses thriving. It's embracing the very thing working against each.
Yes, that's streaming video. The company announced last year it would launch a relatively robust stand-alone option in 2020. We've learned since then it's going to be called Peacock, but more than that, we've learned there's going to be a completely free, ad-supported version of the service that can draw on Universal's and NBC's deep library of content. As fellow Fool Danny Vena pointed out earlier this year, the lowest, least expensive tier of the platform will offer around 600 movies and 400 television programs when it goes live for all consumers in July. Other, more expensive tiers will offer more and newer content.
It's not Peacock's mere existence that makes Comcast so compelling heading into (and then out of) the coronavirus firestorm, though. It's what seems to be relatively modest expectations.
The company says it's looking for between 30 million and 35 million Peacock subscribers by 2024. The outlook may underestimate just how much interest there is in such a well-supported service when it's appositely free, however. For perspective, Walt Disney (DIS 1.31%) has amassed more than 26 million subscribers to its Disney+ service after launching in November with a relatively limited (albeit high-quality and marketable) library of content. Ad-supported video venue Tubi TV, recently acquired by Fox Corporation (FOX +0.57%) (FOXA +0.10%), reported it had brought 20 million regular monthly viewers into its fold last year, and that was without the marketing firepower a name like Comcast has at its disposal.
Bottom line
As for Comcast's Universal theme parks and film ventures, unfortunately, they'll just have to take their lumps. The good news is, those aren't particularly big businesses compared to the company's other arms. The stock's 23% tumble from its January high also mostly reflects the effect the coronavirus pandemic has and will have on the organization's bottom line.
Data source: Thomson Reuters/Refinitiv. Chart by author.
More than anything though, Comcast's core businesses are the kind that prove to be recession-resistant -- if that's what's in the cards -- yet marketable even if the global economy is able to pull itself out of the slump. Broadband customers are well aware they'd struggle to suddenly go without it, yet consumers are also weary of ever-growing monthly bills linked to multiple video subscription services. A free or low-cost one backed by a big studio and television name should draw quite a crowd.
