Comcast's Demise: Greatly Exaggerated
One of the most enjoyable awards given out each year, the Consumerist's Golden Poo, goes to Fortune 500 companies that have downright awful experiences for their customers. Whether it's Monstanto crushing the small farmer in favor of a monopoly on food or AT&T using a business model that seems to be based on dropping calls, the GP goes to the worst of the worst. For the past three years running, it's landed on the mantle of Comcast, the Philadelphia-based telecom company that controls a larger share of web service, television, and communications than any other company in the United States. Although Comcast has been accused of nearly every negative in the capitalist world, including horrifically slow Internet speeds and customer service that could best be described as painful, the company's stock has jumped by 10% in the past month alone along with 20% in the past 52 weeks. Despite the predictions that cord-cutters and remote web services would eradicate the old business model, Comcast appears to be thriving. This begs the simple question: why?
America's Favorite Drug
To understand the success of Comcast (CMCSA on the NASDAQ, trading for $61.61 a share) it's worth noting how many pies the company has their fingers in. The company outright owns Xfinity, NBC, Universal, MLB Network, Fandango, and has a 32% share in Hulu along with arch-rivals Fox and Disney. As such, it's hard to turn on a television set or go to a movie without a few cents ending up in Comcast's giant pockets. Although the media industry has created a number of doom and gloom prophecies about the death of television as fewer and fewer Americans pay for cable, the numbers make it look like a blip rather than an avalanche. The number of people ditching their cable services is growing by just 1.3% per year, a trend that may be worrying but is by no means dire. Furthermore, those who have retained payment for cable make up for those who do not. The average American spends nearly six hours per day watching some form of video, whether on YouTube or through a 60 inch television, sending revenue to cable providers like Comcast in the form of clicks or commercials or subscriptions. Forbes has gone so far as to say that cord cutting in the United States represents a myth: Americans may be picking and choosing which TV they watch rather than buying the whole package, but they still have their eyes glued to a screen and are still customers. What's more, Comcast owns a lot of intellectual property that's going to expand in the near future. While Disney has Star Wars, Comcast has Jurassic World as well as the rights to a lot of niche franchises, such as the 50 Shades of Gray movies that women inexplicably love and the Minions films targeted to kids and families. As filmmaking appears set to tread towards regular releases of particular brands, Comcast has a lot of cards up their sleeves.
Internet For All
If Comcast sees less success in their TV subscription base, which fell by about 40,000 last year, they're more than making up for it with their admittedly-slow Internet subscriptions. Comcast added over 300,000 web subscriptions in the third quarter of 2015 alone. Compare that to their main rival, Time Warner Cable (TWC on the NYSE, trading for $188 per share), who has seen only about 200,000 new subscribers in the same time period, and it becomes clear where the company's business model thrives. The slow decline in traditional TV coupled with the burst of Internet consumers gives Comcast a lot of time and flexibility to adapt to a changing market, a luxury that a number of corporations (most notably the rapid-paced computer and auto industries) would kill for. Furthermore, the Internet all but sells itself: while Comcast is the nation's second-largest marketer, shelling out two billion dollars per year to sell their brand -- only Proctor and Gamble advertise more -- their advertisements for web services lag far behind their ads for television. In many cases, Comcast literally doesn't need to advertise. Their business model of setting up shop in remote areas without competition makes Comcast the de-facto connection between you and your email, social media, news, and other favorite websites. Creating repeat customers by brute force may not be pretty for the ones who receive the bill each month, but creates a fantastic backbone for the company.
Future Woes? Hardly
At present, there do not appear to be any weak links in Comcast's armor. The company has diversified their assets to the point where they control a huge wedge of American media and offer the sole telecom service to a large fraction of the country. Comcast earned nearly a billion dollars more in Q3 than projected, a small indication of their ability to persevere. CEO Brian Roberts has been with the company for all 13 years of their time as a publicly-traded company, a remarkable measure of stability and leadership that investors crave. While there's ample reasons to be upset with Comcast, including the speed of their Internet, there's hardly any faults for investors, and no reason to think the company won't have solid growth through the near future.
- The Takeaway: while it's unfortunately too late to invest in Comcast stock back at the company's last low point in 2009 (the asking price has grown over 500% since), no portfolio should go without Comcast as a predictable and dependable growth engine. The company offers slow but steady gains anchored by a huge customer base and a fantastically popular business model. Don't think of Comcast as pump-and-dump stock, or else you'll be disappointed with the return.
- Do other telecom companies have the same accolades as Comcast? Time Warner looks hard to criticize: their asking price has risen five-fold since 2009 as well. Look for the companies that control access to the Internet as a growth mechanism for your portfolio, since even ardent cord cutters will not go without a WiFi connection.