Comcast Under Fire in 3rd Quarter
- By Sangara Narayanan
Cable TV company Comcast Corp. (CMCSA) faces an uncertain future due to the rise of streaming video on demand (SVOD) players. With video traffic on mobile devices growing at an alarming rate, the amount of time people spend watching TV has been declining each passing year. But the real question is, does Comcast have the ability to address this generational shift, or will its business be disrupted by Netflix (NFLX), Amazon (AMZN), Hulu, YouTube, Facebook (FB) and countless other competitors?
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The intrinsic value of CMCSA
Unlike Nokia (NOK) and Blackberry (BBRY), whose fortunes turned swiftly in the global devices market due to the disruption caused by iPhone and Android smartphones, Comcast is not a one-trick pony. Over time, Comcast has turned itself into a media conglomerate, covering areas like movie production, television broadcasting, cable TV, broadband internet and theme parks. Comcast also provides bundled services, where cable customers not only subscribe to TV programming, but can also add internet and telephone services.
The practice of bundling is what has made Comcast's products irreplaceable for millions of customers. TV viewership, however, has been declining steadily over the last 10 years as streaming services continue to eat up market share. Case in point, Netflix's U.S. subscriber base has doubled in the last five years to 50.85 million subscribers, compared to 48.61 million cable TV subscribers.
Although cable TV providers were able to hold their ground, posting minimal losses as Netflix, Amazon and YouTube took most of the viewing time, the subscriber decline has accelerated in the last five quarters. Comcast has warned investors the company expects a significant subscriber decline in the third quarter due to competition and the recent hurricanes.
While we will get a clearer picture of the company's performance when it releases third-quarter results on Oct. 26, it is evident things are not going well for the company and its core business. The problem is Comcast executives are pointing fingers at competition in the industry for the loss of customers, but it is equally possible cord-cutting may have helped accelerate the decline to higher levels than we have been seeing for the past couple of years.
Netflix, Amazon, YouTube and Facebook are all bending over backwards to create original programming by doling out money to content creators as they build their respective video empires. Bundling internet and TV has, so far, helped cable TV to survive, but as competition keeps adding more and more value, the value of the bundle keeps going down. Customers will start opting for just an internet connection and a streaming video subscription. Gone are the days when we needed TV to watch NFL and NBA games. Today, various platforms bring that to our smartphones, and they do it for free.
Fortunately for Comcast, it does not have all its eggs in one basket. But the trend in cable TV subscriptions is troublesome, nonetheless, and there is no doubt the company's largest business unit is under fire.
Disclosure: I have no positions in the stock mentioned above and have no intention of initiating a position in the next 72 hours.
This article first appeared on GuruFocus.
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The intrinsic value of CMCSA
