Comcast (NASDAQ:CMCSA) is the latest company to enter the streaming market. It now competes with the likes of Netflix and Disney as its recently launched Peacock service seeks to gain market share.
However, investors should also remember that Comcast is a telecom stock as much as it is a media stock It owns the infrastructure that provides internet and television service to millions of customers. It also controls Sky, which serves 24 million customers in seven European countries.
These telecom services have driven most of the company's revenue, and demand should remain robust for internet services and content. Nonetheless, even if Peacock succeeds, the fallout from cord-cutting could still plague Comcast stock for a long time to come.
The problem with Comcast and its peers
At first glance, Comcast may look like a smaller version of Disney. Through NBCUniversal, it possesses the content of both NBC and Universal as well as Universal's theme parks. Also, with consumers cutting the cord on cable TV, the company has had to bolster its internet and streaming offerings to maintain its customer base.
It has experienced some success with Peacock, which is signing up customers faster than its peers.
Peacock also boosted Comcast stock following the third-quarter earnings report. Comcast reported that 22 million customers have now signed up for its Peacock streaming service, more than double the 10 million who had signed up as of the previous quarter. This is impressive growth considering that the service launched nationally in July.
However, investors face a fundamental problem. For all of the hype about streaming, it will likely not replace the lost revenue from cable TV. Peacock's most expensive plan costs $9.99 per month. The average cable package, which typically includes internet service and a landline, costs more than $217 per month, according to DecisionData.org.
Comcast charges between $30 and $80 per month for no-contract internet plans. Its plans that bundle the internet, a landline, and cable TV with no premium channels run as high as $160 per month once the regular rate applies.
If a customer switches from the bundle to internet service and Peacock only, it means a significant revenue loss to Comcast. The trend toward cord-cutting probably makes these losses inevitable.
Still, one cannot deny the permanent loss of a lucrative revenue stream. For this reason, Comcast could remain a stagnant or a slow-growth stock at best.
Comcast stock and the financials
However, one of the few benefits from cord-cutting is that it may make Comcast seem like a bargain. The stock trades at a forward price-to-earnings (P/E) ratio of around 14, well under the valuation of Netflix or Disney. Its annual dividend of $0.92 per share yields about 2.1%, slightly above the S&P 500 averages.
Still, COVID-19 continues to weigh on its financials. In the latest quarter, revenue fell by 5% from the same quarter last year. This led to adjusted earnings per share of $0.65, 18% lower than year-ago levels.
The company experienced double-digit increases for its high-speed internet, wireless offerings, and advertising revenue. However, COVID-19 hammered the NBCUniversal segment of the company. Revenue fell by almost 19% year over year, as theme park revenue dropped by 81% and filmed entertainment brought in 25% less than it did one year ago.
Where Comcast goes from here
Inevitably, studios will resume production, and investors can expect customers to return to theme parks once the pandemic recedes. Moreover, high-speed internet, streaming, and wireless will remain growth areas for the company, as will Peacock. Unfortunately, this success will probably not make up for the decline of its highly profitable cable TV business.
The telecom services should ensure Comcast's survival. Perhaps it will even experience some success with theme parks and content development.
Still, survival does not necessarily mean prosperity. If customers want a low-cost stock that will remain stable and produce modest cash flows, Comcast stock will serve them well. However, investors who want higher growth should probably look elsewhere.