Comcast Stock: Bears Are Way Off on Comcast Corporation

Comcast StockComcast Corporation’s Results Hint Plenty of Upside for 2017

In its latest quarterly results last July, Comcast Corporation (NASDAQ:CMCSA) reported almost three percent higher revenues and slightly better earnings per share for the second quarter. Both indicators proved to be higher than analysts’ expectations.

Comcast stock, meanwhile, failed to respond. But the company has shown an ability to retain and even win back cable customers, while expanding its content through strategic acquisitions. Comcast stock was trading at $65.8 on Monday, but there is an analyst consensus of at least 15.2% upside, with higher estimates of 30% in the next 52 weeks. This suggests that Comcast stock could get a big boost after the company’s next earnings release.

It’s true that investors were not impressed. Perhaps fears that U.S. regulators like the Federal Communications Commission (FCC) might force Internet providers to lift limits on Internet usage played a role. Limitless Internet, goes the theory, would benefit streaming-based entertainment providers like Netflix, Inc. (NASDAQ:NFLX), to the detriment of cable TV and Internet providers like Comcast. Accordingly, investors feared a loss of profit, which would inevitably affect Comcast stock.

But there’s plenty of evidence that allows us to blow those fears out of the proverbial waters. Indeed, the most important metric to emerge from the most recent quarterly results is that Comcast’s user numbers actually rose, against the odds and against the trend. Comcast showed that, during the second quarter, it retained more customers than in the previous decade. The second quarter was not especially bright for the cable industry, but Comcast pulled it off.

Comcast Might Be Winning Customers Back

This means that Comcast lost only 4,000 video customers during the second quarter. Video is one of the most important revenue generators for Comcast, accounting for some 45% of its $12.4 billion in revenues from its cable communications business. (Source: “Comcast Bucks the Cord-Cutting Trend; What Gives?TheStreet, September 5, 2016.) This can’t be a mere accident, and CMCSA shareholders can watch the third quarter to further corroborate this pattern.

In fiscal 2015, Comcast lost 36,000 customers. But, by the second quarter of 2016 , the loss was reduced to 4,000 subscribers (as noted above), which was the company’s best performance for this period in a decade. This suggests that the Internet Protocol TV (IPTV) migration phenomenon is by no means non-reversible. Similar experiences among cable operators in North America suggest this is not an isolated phenomenon, or one exclusive to Comcast. (Source: “Telecoms losing TV subscribers turns to Streaming new services,” TVBoxers, August 22, 2016.)

Comcast attributed the high customer retention rates to higher rate adjustments. The company said that only a small portion of its traffic resulted from users signing up for more services, although these also increased, if ever so slightly. The higher revenues also resulted from another favorable indicator. Users signed on to get additional services. (Source: Ibid.).

This suggests that, while cable companies are facing tremendous challenges, some, like Comcast, are proving to be resilient in maintaining and even increasing user numbers. Evidence suggests that many customers are holding on to more traditional cable TV services. Comcast is poised to remain a dominant player, which is bullish for CMCSA stock. Still, Comcast should also adapt to the streaming market or provide more Internet content to appease investors’ legitimate concerns.

Comcast Has Added More Valuable Revenue Sources

Analysts saw Comcast as one of the likeliest buyers of Yahoo! Inc. (NASDAQ:YHOO). That acquisition would have given cable provider Comcast a direct ticket to Internet content. But Comcast may have found the final price tag too steep.  Rather, it has chosen another media or content avenue to pursue.

If nothing else, Comcast stock deserves attention because it shows that cable companies have a chance to win back customers. They are the customers who have used IPTV but disliked the experience. Of course, Comcast has launched its own IPTV platform in the meantime. The Comcast results suggest this is happening. There are few other ways to interpret the pattern.

Meanwhile, in the race for content, Comcast, already the owner of NBCUniversal Media, LLC, has acquired DreamWorks Animation LLC (NASDAQ:DWA) for $3.8 billion. DreamWorks, known for series such as Shrek and Kung Fu Panda, was one of the first Hollywood giants to open production studios in China.

Analysts expect that DreamWorks Animation will give more ammunition to Comcast in its battle with such rivals as Walt Disney Co (NYSE:DIS), Time Warner Inc (NYSE: TWX), and Viacom, Inc. (NASDAQ:VIA) in competing for the always-intense children and family audiences. (Source: “Comcast Completes $3.8 Billion Purchase of DreamWorks Animation,” Variety, August 22, 2016.)