A Contender against the Old Guard in the Telecom Sector

CMCSA - Comcast

Comcast is a global media and technology company. It is a leading cable provider in the U.S. The company operates through three primary businesses: Comcast Cable, NBCUniversal, and Sky. 

By segments, Cable Communications is Comcast’s largest accounting for more than 50% of total revenues, followed by Sky (17% of 2019 revenues), cable networks and broadcast TV (10% each), and theme parks and filmed entertainment. Comcast Cable is a leading provider of high-speed internet, video, voice, wireless, and security and automation services to residential customers in the U.S. NBCUniversal is one of the world’s leading media and entertainment companies. Its broadcast television consists primarily of the NBC and Telemundo broadcast networks, and filmed entertainment comprises of the operations of Universal Pictures. Sky is one of the leading entertainment companies in Europe. Comcast’s theme parks comprise of Universal theme parks in Orlando, Florida; Hollywood, California; and Osaka, Japan.

Cable Communications caters to more than 31 million customers, including 29 million residential and 2.4 million business customers. As a communication and media giant, Comcast maintains a large asset base consisting of operating plant and equipment, and distribution network. The company’s primary markets are four of the top 10 globally in terms of high-value customers with 55 million customer relationships.

Investment Data

Revenue Growth & Market Exposure

With more than five decades of experience under its belt, Comcast has established a large portfolio of diversified businesses. Most of the cable communications’ revenues come from high-speed internet and video services in the U.S. The revenue is subscription-based and is generated primarily from residential (~90% of revenues) and business (10%) customers. A portion of its residential customers is subject to minimum-term contracts that range from 1 to 2 years, while for business customers minimum-term contract period is 2 to 5 years. Comcast is in a position to connect 54% more homes and businesses to its cable distribution system without extending the transmission lines. In the NBCUniversal business, the cable networks segment is the largest earnings contributor.

Comcast’s  X1, a cloud-based entertainment platform has accelerated its technological innovation. Other products like xFi, Xfinity Mobile, and Flex, also continue to add value to its core broadband offerings. The company is focusing on growing its high-margin businesses ie. residential high-speed internet and business services. It will focus on the emerging areas of streaming and content aggregation with the launch of Peacock. 

Since March, the company has witnessed a 32% increase in upstream traffic and an 18% increase in downstream traffic as people stay indoors as a result of the pandemic. But its cable business experienced a slump with a decline in subscriptions. Comcast’s cable subscriber base was down to 19.9 million from 20.9 million a year ago. An increasing number of people are now switching to streaming options.

Dividends

Comcast paid $3.7 billion in dividends to shareholders and generated a record $13.4 billion in free cash flow in 2019. Its latest dividend hike was 10%, representing the 12th consecutive annual increase. Comcast is a Dividend Starter. It currently sports an average annual dividend yield of 2.5% and a very reasonable dividend payout ratio of 32%. Comcast has an impressive dividend growth rate of 25% CAGR in the last decade. Its earnings growth has also compounded at a rate of ~19% CAGR during the same time.

Comcast’s business is highly capital intensive and requires significant investments from time to time for acquisitions, network expansion, and theme park maintenance but its businesses generate significant operating cash flows. The company continues to invest in scalable infrastructure to increase its network capacity and deploy wireless gateways. It is also investing in businesses focusing on increasing its advertising revenue like the launch of NBCUniversal Checkout, a digital shopping cart operated by Comcast. Its soon to be launched subscription-based video streaming platform, Peacock will have access to Universal’s and NBC’s large library of content. Comcast (Fandango subsidiary) is also all set to acquire another streaming platform, Vudu which will grant most of the controlling reins of the transactional video-on-demand market to Comcast. These acquisitions are poised to fortify Comcast’s foothold in the digital media marketplace.

Competition

Comcast’s businesses operate in highly competitive and rapidly changing environments. It competes with a growing number of companies and faces intense technological changes. Comcast competes with a growing number of online streaming companies as consumers increasingly turn to online sources for viewing and purchasing content. Rapid changes in technology and customer viewing pattern have disrupted the way content has been traditionally viewed by consumers. Comcast competes with the likes of phone companies such as AT&T, CenturyLink, Frontier, and Verizon. It also competes with wireless and internet-based phone services, such as Skype. 55 million high-value customer relationships and fantastic premium content are Comcast’s strong competitive advantages.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
NYSE:VZVZVerizon Communications Inc.Communication ServicesCommunication Services0.6354.71226.3912.3223.664.440.04504.500.554142.460.069058Standard BusinessNOYESNONOUSA1
NYSE:TTAT&TCommunication ServicesCommunication Services0.6428.31201.7114.3623.661.970.07357.351.055842.080.095367Standard BusinessNOYESYESNOUSA1
NASDAQ:CMCSACMCSAComcast CorporationCommunication ServicesCommunication Services0.7935.92163.9414.2323.662.520.02562.560.365140.920.158696Standard BusinessYESNONONOUSA1
NYSE:AMTAMTAmerican Tower CorporationCommunication ServicesCommunication Services0.42229.58101.7753.7123.664.270.01881.881.011744.320.222063Standard BusinessNONONONOUSA1

Bottom Line

Comcast’s studios, television production, and theme park businesses have been hit as a result of the COVD-19 outbreak. It is, however, witnessing massive growth in its broadband services. The company also absolves to strengthen this business and is investing millions of dollars in this direction. Its acquisition of streaming platforms should further result in a more comprehensive and integrated digital player in the industry.

CMCSA vs Indexes 2020

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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