Peacock Streaming Ad Revenue Is Good News for Comcast Shareholders

In this podcast, Motley Fool senior analyst Jason Moser discusses:

• NBCUniversal has booked $1 billion in upfront ad revenue for the Peacock streaming service.
• Why The Trade Desk (TTD -0.54%) could be a hidden winner from Peacock's advertising growth.
• Andy Jassy is marking his first anniversary as CEO of Amazon (AMZN -1.65%).

Motley Fool host Alison Southwick and Motley Fool retirement expert Robert Brokamp talk with author Morgan Housel about the Great Recession, what led to the financial crisis of 2008, and its implications for investors today.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on July 2, 2022.

Chris Hill: Amazon CEO celebrates his paper anniversary and Comcast celebrates a milestone for its streaming service. Motley Fool Money starts now.

I'm Chris Hill. Joining me today, Motley Fool Senior Analyst Jason Moser. Thanks for being here.

Jason Moser: Hey, thanks for having me.

Chris Hill: We're going to get to Andy Jassy in a minute, but let's start with some news from the world of streaming video. NBCUniversal has booked $1 billion in upfront ad revenue this year for Peacock, its streaming service. That is double the ad revenue that Peacock did in 2021. When you look at 28 million monthly users, 13 million paid subs, I realized these are not eye-popping numbers. Peacock is nowhere near the top of the heap when it comes to streaming services. But I feel like in this environment, Jason, if you're Comcast shareholder, you have to like the growth that you're seeing at Peacock.

Jason Moser: Yeah, I definitely would. I mean, we've noted before on the show that Peacock, first and foremost, is explicitly an ad play for Comcast. They have stated before, they do not view Peacock as a separate, distinct streaming business. You look at something like Netflix, for example, where that's the business. It is a streaming business. They don't want view Peacock that way. Ultimately they see it as an extension of their overall TV landscape, and that's how they manage it. The strategy from the very get-go is going to be different. I mean, it certainly benefits from the live sports angle, I think being a Peacock subscriber ourselves, and we have, I think, the mid-tier that 4.99 or 5.99, whichever one it is Tier that has some commercials on it. But one thing I noticed just over the past month or so, the recent US open golf tournament for example. I mean, they may that to where some of that was specifically and only available on Peacock.

It guided viewers over to Peacock for a certain window of that broadcast. They're able to do that, more and more of these live sporting events. Obviously, the Olympics they've benefited from, I think they're going to have Sunday Night Football, if I'm not mistaken, this coming year, which will be, I'm sure, that big contributor. You noted 13 million paid subscribers, 28 million monthly active accounts. It's worth noting this most recent quarter they added four million paid subs to end that quarter. To get to that 13 million paid subs number, engagement continues to grow. They've seen 25 percent increase in hours of engagement year over year. Ultimately, the revenue that Peacock is bringing in, that revenue grew more than five times this most recent quarter to over $472 million. All things considered again, I agree with what they're doing here, managing it as an extension of their overall TV landscape. Because that landscape is really so vast. It seems to be a nice dual-purpose little facet to the business. I mean, they can distribute content, but it's also a nice little acquisition tool as well.

Chris Hill: This is not the headline today for this company, but you dig down a little bit. They were able to raise add rates in the mid single-digit range. That's not an enormous demonstration of pricing power? But again, in this environment, they're able to exercise a little bit of pricing power. As you said, this is primarily an ad play and when that's your business, mid-single-digit growth on top of the nearly 30 million monthly accounts they have. Again, you have to like it if you're a shareholder.

Jason Moser: Yeah. It's nothing to sneeze at, and there are definitely some things on the horizon here that I think should encourage those numbers. Recently Comcast announced a joint venture with Charter Communications. Ultimately, they're going to be combining forces to bring their voice-controlled streaming platform to more customers. If you look at Charter with over 32 million customers today, that's going to be an opportunity to get that Peacock product out there in front of more folks. Another thing they're doing, they're bringing all of the NBC next day broadcast stuff back from Hulu over to the Peacock platforms, all of that stuff that NBC benefits from. Now it's going to be more exclusive, and we talk about that all the time. That's really what differentiates all of these platforms is exclusive content.

Then I think you're right. I mean, you look at some of the other carry-on effects. There are some of the other ripple effects. I think in theory this should be good news for a company like The Trade Desk, when you talk about ad rates. The Trade Desk which plays in that programmatic add space, benefiting from the trends and connecting the TV and add supported video on demand. They are our partners. The Trade Desk and Peacock, have a partnership there. You would think that as those rates continue to go up for something like Peacock, as they continue to see that engagement grow, that user-base grow, that's going to be something that should play out on the positive side for a company like Trade Desk as well. You can see some ripple effects here with companies like Charter and the Trade Desk benefiting from this growth in Peacock, and it looks like that's poised to continue.

Chris Hill: Andy Jassy is celebrating his one-year anniversary today as the CEO of Amazon. Let's be honest, what he's probably celebrating is the fact that the year is over [laughs] because it has been a rough macroeconomic environment. The supply chain problems persist. Russia's invasion of Ukraine, which no one saw coming, and the ripple effects there and shares of Amazon down 35 percent since he took over. When you step back and look at the state of Amazon, what stands out to you?

Jason Moser: I think you're probably right. I think Jassy is probably glad the year is over, ready just to keep moving forward. It was a difficult transition. They say timing is everything and he stepped into a very difficult situation from a timing perspective. Obviously, they built out a lot of capacity over the last couple of years in order to deal with this changing, retail landscape. There's just so much of our consumer behaviour has changed for obvious reasons. I don't hold him really so much accountable for that and I don't mean to just cross over but the fact of the matter is, and they even made a note of this of the most recent call, but capacity decisions are made years in advance. That's code for, "Bezos did it. It wasn't me, it wasn't Jassy." I mean, in all honestly, those decisions were made well before Andy Jassy even took over.

Now, it doesn't mean he wasn't necessarily a part of that decision-making. Perhaps he was. I would imagine he was in the room at least. But I think that it's just worth noting. It was a very difficult stretch of time in 20 and 21, I think, that Amazon has dealt with appropriately. I think we're going to start to see, and they believe this, but we're going to see as Prime Day hits in the third quarter this year and as we move into this holiday season, they believe they're going to start seeing more of the benefits of that excess capacity. It doesn't mean that they don't have to deal with it, they do still need to deal with it, but it's going to be something that has a dwindling effect on their financial performance as the year continues, assuming of course, that consumer demand remains somewhat robust and Amazon remains one of the premier channels for us to get all of that stuff that we want. If that rings true, and I think it likely will, I think there's a chance to see the flip-flop a little bit.

When you look at Prime Day of last year, they noted it contributed 400 basis points to their growth in the second quarter. Again, this is going to be something we see materialize in the third quarter this year. But if they can witness that same type of growth and start to see the leverage play out a little bit on the other side there in regard to this fixed cost structure for all of that capacity they built, we could see their financial performance start to improve in the back half of this year and carry on into the holiday season, which would be a great thing for shareholders and I'm sure it would make Mr. Jassy feel a little bit more comfortable knowing the spotlight wasn't necessarily so bright on him.

Chris Hill: Prime Day, which is of course now two days and it's happening next week. Prime Day is, look, I don't want to call it a holiday, but it's this made up event that the company came up with a decade ago. For a long time, I looked at Prime Day as something of a luxury in the sense that, "Hey, this is basically something the company came up with to create demand for the Prime service and get some excitement six months before Christmas, and good for them for coming up with this." But it was like a nice to have a thing as a shareholder. This year, I'm looking at Prime Day as if, this is not a luxury. We need Prime Day. Shareholders need Prime Day to be a hit. Am I wrong to have that shift in expectations that they need it to be more of a hit this year?

Jason Moser: I think in the near-term, yes. I mean, they definitely would much prefer to see it go over like gangbusters. I don't think it really changes the long-term outlook for the business. I mean, we're in a difficult time right now as consumers. I think chances are we really are in a recession now as we're speaking. I mean, even if by some chance the numbers don't bear that out, it sure feels that way for a lot of folks. We're seeing consumers digging into savings now in order to make ends meet and obviously utilizing credit cards more and more, which is not a good thing, and so I think it's reasonable, at least, to expect this to be a bit more of a muted Prime Day event. If that's the case, then so be it. I don't think that's going to be something that's necessarily fatal to Amazon because I don't think they would be the only ones in that boat.

But, I don't think it changes the long-term outlook because I think as soon as the consumer recovers and things get back to some sense of normal, they're always going to have that lever they can pull. Then they're also going to have a lot more capacity online than they had before to be able to fulfill that demand and really get back to what has made them so special up to this point. That is the convenience aspect of it. I mean, they've just done such a good job in conditioning us to expect those things within 24 hours or two days. We obviously saw that shift a little bit over over the last couple of years. But if they can really get back to that convenience angle that they've done so well with I suspect they'll be OK.

Chris Hill: I just hope it goes well enough that they don't expand it to three days. [laughs]

Jason Moser: Yes. When we start getting to that Black Friday asks, "Oh, well, it's just all year long." I don't know, but Chris, everyday is Prime Day at my house. I mean, it seems like I come home, there's an Amazon box or a package there waiting for for one of the four of us every day. In that regard, yeah. [laughs] Hopefully it doesn't lose its luster.

Chris Hill: Jason Moser, thanks for being there.

Jason Moser: Thank you.

Chris Hill: If you've got a question about stocks, leave us a voice mail on the Motley Fool Money hotline. The number is 703-254-1445. That's 703-254-1445. Up next, Allison Southwick and Robert Brokamp close out their series on past market declines with Morgan Housel. This time they looked at the Great Recession, the underpinnings that led up to the financial crisis of 2008, and its implications for investors today.

Alison Southwick: Well, it's the fourth and final episode and our series on market crashes, and Morgan joins us again. Hi Morgan.

Morgan Housel: Hi guys, haven't seen you in a long time.

Alison Southwick: I know it's been a while. For many listeners, they remember very dearly the Great Recession because they lived it. But let's revisit it because they said it was great for a reason. The odds got off to a rough start with 911, which is actually the day after I moved to DC. DC isn't a warm town and there's a reason they call it that city of Northern charm and Southern efficiency. But in the wake of 911, everyone was walking around looking for a hug. Perhaps it was all this coming together that helped fueled Web 2.0, which was a new wave of the Internet built around community and social media. We did a lot of sharing back then: Music, blogging, pictures, videos, so many fields. While as a nation, we ramped up watching cat videos, we also ramped up buying houses and here's where the fun begins. The Great Recession kicked off in December of 2007. I googled it and that's the answer I got, but Morgan may correct me on when it actually began. Yes, [laughs] we're coming up on the tenth anniversary. Morgan, it's your turn to talk. As much as I want to blame Twitter, what led us into the great recession?

Morgan Housel: Let's go with Twitter.

Alison Southwick: Twitter.

Morgan Housel: Why not. [laughs] I think, if you start with the 1990s boom and then the dot-com bust, something happened after that. Jason Zweig with Wall Street Journal is one who first brought this up. He said, "Investors are very good at learning their lesson, but they learn to precise a lesson." After the dot-com burst, people lost all this money trading dot-com stocks. The lesson that they learned was, the stock market is dangerous, but they didn't learn the lesson of leverage and going into things that they don't understand. Basically, a lot of people who've lost a fortune in the dot-com bubble, packed up, took what money they had left, and went straight to real estate.

Alison Southwick: Oh Jesus.

Morgan Housel: It's almost like instantaneous between that movement and then what the Fed was doing with interest rates, making leverage really appealing in early 2000s. The real estate bubble happened, I mean, basically the day the dot-com bubble ended; real estate [laughs] prices start rising. Even though we had a recession in 2001-2002, real estate prices were rising, all during that time. No impact whatsoever on real estate prices. Then between really low-interest rates, and this is what Robert Schiller talks about, the psychological aspect of bubbles, you have something like optimism with an asset and that just feeds on itself and it snowballs on itself and you see your neighbours getting excited and your brother and your sister and your parents making money on real estate and then optimism just spreads and it grows.

Alison Southwick: They were just being able to afford more and more house than they could.

Morgan Housel: I think a lot of people were making money as early 2002, 2003.

Robert Brokamp: Flipping them and taking out [inaudible 00:15:55]

Morgan Housel: You had a lot of people that purchased homes in the '80s and '90s for a mortgage interest rate of maybe eight or nine percent which in the '80s and early '90s, that's what a mortgage cost. Now you can refinance your mortgage at four percent. People were doing that and getting a dramatically lower payment, or just pulling a ton of equity out of their house that they could use to buy jet skis and remodel their house and whatnot.

Alison Southwick: It's always jet skis [laughs].

Morgan Housel: People love I know. Poor Twitter and jet skis get blamed for everything.

Alison Southwick: They shine. There's a reason why. What was the tipping point? Everyone is buying these houses they can ultimately afford, what caused the great recession?

Morgan Housel: I think it's not necessarily the people who own homes, but it was the banks and the investors at owned all of those mortgages. When they started defaulting on their loans, these big banks and hedge funds and sovereign wealth funds that own all these subprime mortgages, that's when credit markets really started seizing up. The first one was a group of hedge funds in the summer of 2007. They were big credit funds and all of a sudden, one day out of the blue, they shut their doors. If you're an investor, you can't have your money back because they had no liquidity in the portfolio. They couldn't sell, the subprime bonds, there was no market for them. If you sold subprime bonds and mortgage bonds, which is a trillion dollar industry back then, happened very quickly in 2007, when the market just shut down and you couldn't sell them anymore, and that's really when the panic begun.

Alison Southwick: What happened in the panic?

Morgan Housel: I mean, you had all these banks around the world that we're leveraged 20 and 30 times, they had 30 times as much assets as they did equity. There's huge amount of leverage so that if anything even went slightly wrong, they were in a lot of trouble. Because of that, they started really cutting back on the loans that they were making to the rest of the economy, cutting back on business loans, cutting back on personal loans to creditworthy borrowers who in any other time would've had no problem getting a loan. They were a great person to lend to. But the banks themselves were in so much trouble that they started shutting down those loans as well. During this time, I worked at a private equity firm in Los Angeles in the summer of 2007.

We experienced as well, taking out loans and financing for great healthy companies. These were not sketchy subprime loan companies, these were really healthy, prosperous companies that virtually overnight just the credit spigot just stopped. Things happen really quick with the credit crisis. I think Ben Bernanke too as creditor, recognized this very quickly in 2007, a year before most people started recognizing it. This is when the fed in the late 2007 really started slashing interest rates and stepping in. But the stock market during this time didn't really blink. The credit markets started shutting down in the summer of 2007. The stock market hit an all-time high in October of 2007. Even after the credit markets were going through all kinds of mayhem, the stock market kept going up.

Alison Southwick: So the stock market is still just doing fine, doesn't care but that ends. At some point the stock market starts to care. When is that?

Morgan Housel: It starts to decline a little bit. But even as you get into early 2008, it was still doing pretty well down a little bit five or 10 percent, but still at a pretty high valuation that would be associated with optimism. People really weren't that aware of what was going on yet. I think that's a good takeaway from the great recession. Instead, it's easy to sit here in hindsight and say, obvious, anyone could have seen this coming. If you just think about stock prices, which is a good reflection for the average opinion out there, even a year after credit markets started tumbling, stock market really didn't care that much, which I think is something to reflect on of how hard these things are to spot, even with a year's worth of data in your face, most people really didn't see it.

Alison Southwick: I feel like I also see this tweet at least once a month where someone who's like a financial journalist says the stock market is not the economy, but we always thinking.

Morgan Housel: I think it's right. It is. I think the stock market is a reflection of people's mood, of people optimism and pessimism and that also drives the economy. Another aspect of it is that the savings rate during this period didn't increase that much, so people with the income that they had, unemployment was still fairly low, in late 2007. We're still optimistic enough to go out there and spend a ton of money on restaurants and vacations and whatnot. Late 2007, early 2008, the economy starts slowing a little bit, but it was still going pretty good. I'll buy a lot of metrics. But they're still fairly healthy. The summer of 2008 is really one thing has gotten really dicey.

Alison Southwick: What happen then?

Morgan Housel: I think that's when consumers themselves and businesses really started seeing the writing on the wall, and a couple of events, whether it was Fannie and Freddie being seized. Bear Stearns basically failed and taken over in March of 2008. Fannie and Freddie was, I think August of 2008. Just these confluence of events, that's when unemployment really started ticking up. It's almost just like a tipping point. That's not necessarily based on any one specific news story. But I think it just becomes obvious to most people in the economy where you look around and you say, well shoot. This isn't good. Everyone at the same time, down to me, I probably started going to restaurants less often.

One year before, I would've spent extra money on this but now in 2008 I said, I should hold back. You multiply that by 300 million Americans, it really happened so quickly that between that on the consumer side and then the banking side, of course, Lehman Brothers went bankrupt in September, Washington Mutual, Merrill Lynch, AIG, everything just happened in a one-week period. You put those two things together, a financial crisis and then a slowdown and lack of optimism on consumers. Those two things really drive each other as well. But it really just came crashing down in a one-week period in September 2008.

Alison Southwick: So much of the stock market is based on optimism, does that make it often a trailing indicator of how bad things are going in the economy, or is every market crash its own little unique Snowflake?

Morgan Housel: I think it's unique. There are tons of periods historically where you can look back and say, the stock market was looking in the rearview mirror and hadn't really caught up. Then you can also find a lot of periods where it's obvious that the market was looking ahead at the next six months or the next year and saw recovery before other people. It's generally phrased as the market is looking 6-12 months ahead. But I think you can also look at periods like late 2007 where I think it was looking 12 months behind and really didn't see what's coming ahead.

Chris Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against them, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.