It's easy to presume the worst. Comcast (CMCSA -0.37%) is not only a major player within the struggling cable television industry, but it is also the parent to the NBC network and Universal Studios; COVID-19 has been tough on the movie and theme park businesses too. The end of the pandemic is in sight, but that end is still only on the distant horizon.
There's a reason Comcast shares remain within reach of the record highs hit just last month, though. That is, the coronavirus contagion has arguably done this company more good than harm, and more such upside is still to come.
Comcast is not the company you think you know
Don't misread the message. Last year was an off-year for Comcast, to be sure. Cable network revenue for the year fell 6%, while its filmed entertainment revenue tumbled nearly 19%. Its theme park business slumped by a stunning 69%. Overall earnings before interest, taxes, depreciation, and amortization (EBITDA) was 10% lower, and operating earnings per share for 2020 came in almost 17% lower than 2019's figure.
Image source: Getty Images.
The numbers in and of themselves are misleading, however.
The reality: Comcast's most important businesses are doing just fine. In the meantime, most of last year's chief problem areas -- theme parks and movies -- are headed for a recovery.
The graphic below puts things in perspective, comparing 2019's revenue by division to 2020's figures. For all of cable television's woes, it's still the company's biggest (and still reliable) breadwinner, accounting for a little more than one-fifth of last year's top line. Broadband is the company's second-biggest segment, accounting for 20% of the company's top line. It grew 10% in 2020, partially boosted by the surge of people suddenly working from home, but also extending an established growth trend that's been in place for years. Also take note of how relatively insignificant the films and theme parks segments are to the company's overall revenue, even if these areas have garnered a massive amount of downside media attention of late.
Data source: Comcast Corp. Chart by author. All dollar figures are in millions.
And as a point of interest, while the cord-cutting headwind is real, last year's and the fourth quarter's cable business were only off around 1% year over year. Moreover, broadband revenue growth was accelerating as of Q4.
The divisional EBITDA breakdown is even uglier, if less detailed, when comparing 2020 to 2019.
Data source: Comcast Corp. Chart by author. All dollar figures are in millions.
Most units reported weaker bottom lines, with some losing so much ground that they slipped into the red. Obviously, films and theme parks were a problem, even if they're not a big part of Comcast's revenue mix.
Consider the backdrop, however. Movie theaters and amusement parks spent a great deal of 2020 shut down by mandates, or were operating with severe limitations. Simply shuttering an amusement park doesn't mean there aren't ongoing maintenance expenses.
Better days ahead
Regardless, these costly limitations are now abating.
For instance, theater chain AMC Entertainment only reopened most of its locales last month, and even so, for the time being, it's only offering limited seating. The move mirrors reopening schedules for other theater chains. Similarly, Hollywood's Universal Studios park in California is reopening on April 16, but only to a limited number of guests, and only to California residents. Its Orlando parks are open to all, but also operating at limited capacity until further notice.
They're small steps, but progressive steps nonetheless. Although reported new cases of COVID-19 are on the rise again, the Centers for Disease Control and Prevention says 22.7% of the United States' residents are now vaccinated. Nearly 37% of the population has now received at least one dose of a vaccine. The federal government believes vaccines will be available to everyone in the U.S. that wants one within the next three months. The rest of the world isn't too far behind the United States on the vaccination front.
The point being, to the extent that the pandemic is a problem for Comcast, its end is in sight.
Connecting the dots
COVID-19 isn't the company's only hurdle, of course. Cord-cutting is at best independent of the coronavirus contagion, although one could argue the pandemic has given consumers time and reason to refine their television entertainment services ... by adding more streaming services at the expense of cable.
That's hardly disastrous for Comcast, though. See, consumers need broadband to enjoy their new streaming services, and NBCUniversal is in that streaming mix with its nascent Peacock platform, which boasts 35 million signups.
The advertising lull that crimped last year's cable and network television revenue is projected to rebound as well. IAB forecasts that linear TV will continue to capture the biggest piece of advertisers' spending on traditional ads this year, and MAGNA projects that this year's linear (cable) television advertising spending in 2021 will improve on the order of 4%. Digital advertising's growth is still ultimately poised to overtake cable TV's ad revenue, but Comcast is prepared for this paradigm shift.
Data source: Thomson Reuters. Revenue and EBITDA are in millions of dollars. Chart by author.
Bottom line? Yes, Comcast is a buy. Last year was a tough one to be sure, but the challenge was temporary. While this cash cow may never be a high-octane growth stock and its dividend yield isn't thrilling, the company's far more future-proofed than most investors may realize. And the dividend it pays to shareholders is far better supported than many investors appreciate.
