Please ensure Javascript is enabled for purposes of website accessibility

Why Cable Stocks Were Diving Today

By Jeremy Bowman – Apr 30, 2020 at 4:25PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of Discovery, AMC Networks, and ViacomCBS sold off after Comcast said cable subscribers had tumbled.

What happened

Share of cable network operators including Discovery (DISC.A) (DISCK)AMC Networks (AMCX -1.12%), and ViacomCBS (NASDAQ: VIAC) were tumblng today after Comcast (CMCSA -2.04%) showed a sharp dive in cable subscriptions in its first-quarter earnings report, a bad sign for cable networks dependent on affiliate fees and advertising.

The three stocks all finished down sharply, with Discovery off 9.3%, ViacomCBS down 9.1%, and AMC Networks 10.6% lower. Comcast closed down 3.5%.

Cable cords going into a cable box

Image source: Getty Images.

So what

Comcast is the nation's biggest cable provider, but also has a diversified business with broadband internet and its ownership of NBCUniversal, giving it exposure to a movie studio, theme parks, and the NBC family of networks.

Its cable subscriptions are something of an indicator for the broader industry, and in the first quarter Comcast lost 388,000 residential video subscribers, much worse than its performance in the first quarter of 2019 when it had a net loss of 109,000. The company finished the recent period with 19.9 million cable subscribers, down from 20.9 million a year ago. It also lost an additional 22,000 business cable subscribers. 

Management blamed the loss of live sports for the subscriber exodus, and warned that the second quarter would be more challenging overall due to the economic impact of COVID-19.

The numbers along with Comcast's guidance are clearly a warning signal for cable networks, and they come after Verizon reported a net loss of 84,000 video subscribers in its first quarter, a sign the industry experienced broad subscriber losses. Netflix also experienced a surge in subscribers, showing that cord-cutting is accelerating. 

Discovery, AMC, and ViacomCBS are struggling with the secular headwinds in cable as consumers switch to streaming options. Two of the three companies, Discovery and ViacomCBS, have done mergers to help beef up their content and slim down costs. Discovery acquired Scripps, while Viacom and CBS merged earlier this year. In fact, ViacomCBS announced another round of layoffs this week as the company aims for $750 million in post-merger savings. 

AMC Networks has remained independent so far, and the company has invested in niche streaming services, including Acorn TV and Sundance Now, while its cable subscriber base has stagnated, with revenue from its U.S. cable networks falling slightly last year.  

Discovery has had more success than its peers since its merger. It's become the clear leader in verticals like home, travel, and food, and had the most-watched pay TV portfolio among women ages 25 to 54 last year, giving advertisers a valuable market. Its revenue grew 6% last year. 

Now what

In addition to the challenges from cord-cutting, these companies face more immediate headwinds from COVID-19 as nearly all television production is currently shut down. ViacomCBS lost the valuable NCAA basketball tournament, and while these networks rely on new programming less than others might, consumers will eventually get fatigued on old content no matter what the source is, and that could accelerate cord-cutting.

All three of these networks are set to report earnings next week, and investors should expect challenges across the board in subscriptions, advertising, and production. The silver lining here is that much of that weakness is already priced into these stocks since they have fallen sharply in the recent sell-off. But considering the secular headwinds against cable, they are unlikely to recover lost subscribers after the pandemic ends.

Expect these stocks to continue to be volatile next week as earnings reports come out.

Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Discovery (C shares) and Netflix. The Motley Fool recommends AMC Networks, Comcast, and Verizon Communications. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AMC Networks Inc. Stock Quote
AMC Networks Inc.
AMCX
$20.25 (-1.12%) $0.23
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$30.26 (-2.04%) $0.63
Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.
DISC.A
Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.
DISCK

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
327%
 
S&P 500 Returns
105%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.