CMCSA - Comcast Corporation

[Spekulatius]

OT but I wonder if the major networks could form a sports licensing sub/joint venture and bid as a group on all of the major sporting events, and run a specialized sports sub package.  antitrust issues will be present but there is a body of antitrust law that enables joint ventures, and I could see the consumer benefitting, which is the touchstone of antitrust law.  nothing prevents amazon/netflix/google etc from competing to win sports programming, but a combined espn/universal/fox sports programming venture should be successful...that would be a dynamite streaming offering for me....

 

I don’t think this would be allowed for competitive reasons. More likely, companies owning the customer relationships like the cable companies, Apple , Google, will make it easy to buy a bundle of services and/ or offer a transaction platform that makes it easy for customer to buy what they want.

[Guest cherzeca]

OT but I wonder if the major networks could form a sports licensing sub/joint venture and bid as a group on all of the major sporting events, and run a specialized sports sub package.  antitrust issues will be present but there is a body of antitrust law that enables joint ventures, and I could see the consumer benefitting, which is the touchstone of antitrust law.  nothing prevents amazon/netflix/google etc from competing to win sports programming, but a combined espn/universal/fox sports programming venture should be successful...that would be a dynamite streaming offering for me....

 

I don’t think this would be allowed for competitive reasons. More likely, companies owning the customer relationships like the cable companies, Apple , Google, will make it easy to buy a bundle of services and/ or offer a transaction platform that makes it easy for customer to buy what they want.

 

I get the competitive question but you have to realize that streaming (whether through internet or on a cable) is a massive industry that will only get much bigger.  I would expect partnerships to develop that "should" be permitted under antitrust laws.  it doesnt make sense for a consumer to have to scroll though 30 channels to find the sporting event he/she wants to watch.  both the consumer and the licensor will benefit from consolidation imo

[dwy000]

OT but I wonder if the major networks could form a sports licensing sub/joint venture and bid as a group on all of the major sporting events, and run a specialized sports sub package.  antitrust issues will be present but there is a body of antitrust law that enables joint ventures, and I could see the consumer benefitting, which is the touchstone of antitrust law.  nothing prevents amazon/netflix/google etc from competing to win sports programming, but a combined espn/universal/fox sports programming venture should be successful...that would be a dynamite streaming offering for me....

 

I don’t think this would be allowed for competitive reasons. More likely, companies owning the customer relationships like the cable companies, Apple , Google, will make it easy to buy a bundle of services and/ or offer a transaction platform that makes it easy for customer to buy what they want.

 

I get the competitive question but you have to realize that streaming (whether through internet or on a cable) is a massive industry that will only get much bigger.  I would expect partnerships to develop that "should" be permitted under antitrust laws.  it doesnt make sense for a consumer to have to scroll though 30 channels to find the sporting event he/she wants to watch.  both the consumer and the licensor will benefit from consolidation imo

 

Streaming will get bigger but streaming is just a distribution method.  Content is the thing that differentiates all the options, be it cable, networks, OTT or anything else.  It doesn't make a lot of sense to combine and share content because you lose all the differentiation of having something your competitors don't.  On the other side, if you're NBA, MLB, NFL, etc. you want to have as many different distribution platforms (streamers, cable, networks, OTA, etc) compete with each other to maximize the amount you get for the content you create.

 

One of the reasons I like Comcast so much is that they are years ahead of the game. Its like they saw this coming long before the first OTT platform went live.  Their X1 platform and their strategy is to become agnostic to distribution methodology and be the aggregation platform (riding on the backbone of their broadband).  At some point they will offer package pricing and you basically have the equivalent of cable but instead of 300 channels you have 50 different OTT content providers.  Netflix, Prime, AppleTV, Disney+ etc will all be the networks and cable channel equivalents.  And Comcast will not only get the broadband service but also take a cut from every content provider.

[Munger_Disciple]

https://www.sec.gov/Archives/edgar/data/1166691/000119312520034732/d877213dsc13g.htm

 

Comcast took a 19.1% stake in Peloton. I don't get the point of this. Seems like they are "diworsifying" with Peloton, Sky, Peacock etc. and diluting the value of the crown jewel, i.e., Comcast Cable. I would rather they spin off the media crap and buyback a ton of Cable stock back.

[BG2008]

https://www.sec.gov/Archives/edgar/data/1166691/000119312520034732/d877213dsc13g.htm

 

Comcast took a 19.1% stake in Peloton. I don't get the point of this. Seems like they are "diworsifying" with Peloton, Sky, Peacock etc. and diluting the value of the crown jewel, i.e., Comcast Cable. I would rather they spin off the media crap and buyback a ton of Cable stock back.

 

I think it is mostly from a $325mm Series E round.  That $325mm is now worth much more.  Not a bad payday.  Not sure if Comcast took more lately. 

 

NEW YORK--(BUSINESS WIRE)--Peloton, the technology company revolutionizing the fitness industry through its indoor cycling bike and studio content, announced that it has closed a $325 million series E financing round. The round was led by Wellington Management, Fidelity Investments, Kleiner Perkins, and True Ventures. Other significant investors in this round included Comcast NBCUniversal, GGV Capital, Balyasny, and QuestMark

[Munger_Disciple]

Thanks BG2008, that makes more sense. I am glad that Comcast made money on Peloton.

 

I still think splitting the company into Cable and media would really shine light on Cable.

[KJP]

There's a decent argument that the market is now assigning zero value to Comcast's NBC Universal and Sky segments. 

 

If you look just at Comcast's Cable division, assign all of Comcast's debt to it, and then compare it to Charter, you'd have two companies in the same business, both growing at roughly the same rate and with roughly similar leverage.  Here are the numbers:

 

Comcast/Charter

2019 Revenue:  $58 billion/$45.7 billion

2019 EBITDA:  $$23.2 billion/$16.8 billion  (includes mobile for both)

2019 Cash CapEx:  $8.3 billion/$7.2 billion (includes mobile and what Comcast refers to as Cable-related software and intangibles)

2019 Cable unlevered, pre-tax FCF:  $14.9 billion/$9.7 billion  (EBITDA - Cash CapEx)

2019 YE Debt:  $96 billion/$78 billion

Debt/EBITDA: 4.15x/4.65x

Current Market Cap:  $170 billion/$120 billion  (Comcast at $36.75/share, Charter at $501/share on an A/N as-converted basis)

Current EV:  $266 billion/$198 billion

Pre-tax unlevered FCF yield to Enterprise:  5.62%/4.86%  (Comcast Cable only FCF)

 

Just on the surface, Comcast's and Charter's current share prices suggest that NBC Universal and Sky aren't worth much of anything.  But to be fair, there likely are some additional factors at play:

 

1) NBC Universal (advertising/theme parks) is getting hit right now, and may not recover anytime soon.  But what is the real permanent loss of value here in the context of a $266 billion EV company?

 

2) Comcast appears to be committed to devoting capital to businesses (content, Europe) that likely are not as good as U.S. cable/broadband, while Charter keeps devoting excess capital to US broadband via buybacks.  The higher Charter's share price is, though, the lower the returns on its capital allocation strategy.

 

3) Charter has some finite tax attributes that lower its current cash taxes, so current Charter FCF is higher relative to Comcast's than the numbers above would suggest.

 

4) Charter is currently generating significantly lower revenue/customer than Comcast, which may mean that Charter has significant untapped pricing power

 

This is pure relative valuation, so it's possible neither Charter nor Comcast are good investments right now.  But based on the numbers above, I'm shifting some of my Charter investment to Comcast.  I'd love to hear reasons why that's a dumb move.

 

[KJP]

I continue to like Comcast.  Rather than repeat the relative valuation against Charter, here's an overview of what Comcast's broadband division likely looks like in 2020 if you assign all corporate debt to it:

 

EBITDA:  $25 billion

D&A/CapEx:  $8 billion [when you include purchases of software intangibles, D&A and CapEx are roughly the same]

EBIT:  $17 billion

Interest:  $4 billion

Pre-Tax Income:  $13 billion

Tax @25%:  $3.25 billion

Net Income/FCF:  $9.75 billion

 

Current market cap = 4.62 billion shares x $35/share = $162 billion

 

Earnings/FCF yield = 9.75/162 = 6%

P/E = 16.6

 

That's just the broadband division.  It includes no value for NBCUniversal and Sky, which are far from worthless. 

[Liberty]

http://yetanothervalueblog.com/2020/05/comcast-buy-the-cable-business-get-everything-else-for-almost-free-cmcsa.html

[KJP]

http://yetanothervalueblog.com/2020/05/comcast-buy-the-cable-business-get-everything-else-for-almost-free-cmcsa.html

 

The author makes the same point I've been banging on about, but uses the metric of EV/residential passings to illustrate it. 

 

To get into the weeds, his deliberately quick and high-level analysis is adequate if passings are essentially interchangeable.  He acknowledges that Comcast currently gets more from its passings than Charter, but suggests that will change over the next 1-3 years.  In his words,  "Comcast’s cable business is two to three years ahead of Charter in terms of margins, capital intensity, etc. (Said another way: Comcast has better margins, lower capital intensity, etc. than Charter; Charter will almost certainly get to Comcast’s current levels, but it will take them a year or three)."

 

I'm not sure he's right about about the margin convergence or what will drive it.  Here are the 2019 annual per customer (resi + business) for Comcast and Charter:

 

Comcast/Charter

Revenue:  $1840/$1565

OpEx: $1103/$988

EBITDA:  $737/$576

CapEx:  $219/$246  [includes only Comcast Cable CapEx, not software/intangible acquisitions assigned to Cable division; if that's included, Comcast currently has higher capital intensity/customer than Charter]

Unlevered FCF:  $518/$412

 

So, as things stand, there's a $100/customer FCF gap between the companies, and not much of that appears to be driven by capital intensity and OpEx doesn't appear to be the issue either.  Instead, ARPU appears to be driving things.  That may suggest Charter has latent pricing power, but I doubt that they're going to push ARPU in the current economic climate.  So, I think an EV/passing or EV/customer comparison probably undervalues Comcast relative to Charter.  This is also why my analysis in the posts above suggests you're paying less than zero for NBCUniversal and Sky, and why he says you are paying something for them.

 

Of course, some portion of the difference in valuation likely stems from perceived (and perhaps actual) capital misallocation by Comcast.

[Munger_Disciple]

The fact that Charter's margins are worse than Comcast's implies Charter has more untapped future pricing power than Comcast. So, Charter is cheaper than its price implies. I also expect Charter to have slightly higher growth rate in net broadband adds than Comcast which explains part of the difference.

 

As others pointed out, Comcast's main weakness is its media businesses: Sky & NBCU. They paid extremely high multiple (close to 20x IIRC) for Sky and Sky's results have sucked since the deal closed. NBCU is going thru' a much needed reorg due to COVID-19. On top of this they doubled down with the OTT service Peacock which will require significant capital investment over the next few years. In other words, Comcast is taking cash flow from its crown jewel (cable) and misallocating it in the inferior media space where the winners are highly uncertain. And you always have the possibility that they would do another Sky type deal in the future.

[KJP]

The fact that Charter's margins are worse than Comcast's implies Charter has more untapped future pricing power than Comcast. So, Charter is cheaper than its price implies. I also expect Charter to have slightly higher growth rate in net broadband adds than Comcast which explains part of the difference.

 

As others pointed out, Comcast's main weakness is its media businesses: Sky & NBCU. They paid extremely high multiple (close to 20x IIRC) for Sky and Sky's results have sucked since the deal closed. NBCU is going thru' a much needed reorg due to COVID-19. On top of this they doubled down with the OTT service Peacock which will require significant capital investment over the next few years. In other words, Comcast is taking cash flow from its crown jewel (cable) and misallocating it in the inferior media space where the winners are highly uncertain. And you always have the possibility that they would do another Sky type deal in the future.

 

I agree with your second paragraph.  What do you expect each of Charter's and Comcast's growth rate of broadband subscribers to be over the next, say, three years and why?

[Munger_Disciple]

 

I agree with your second paragraph.  What do you expect each of Charter's and Comcast's growth rate of broadband subscribers to be over the next, say, three years and why?

 

If you look at 2019 numbers, the total HSD residential customer net add growth rate is very similar for both (5.2% for Comcast, 5.4% for Charter). Charter has begun to hit the stride in 2019 after spending the previous 2 years on consolidating the TWC/Bright House acquisitions. If you look at the residential net adds for Q1 2020, Charter has 566K (+2.23% from year end 2019) residential net adds vs. Comcast's 466K (+1.76% from 2019 year end). Of course one quarter does not mean much but I think Charter has a higher % of rural/suburban footprint so it is possible that this growth trend may persist. Tom Rutledge hinted at this as he implied their EBITDA is lower as a % of sales because they spend high $ amount in pursuit of customer growth. I excluded business HSD numbers in this because COVID make them less meaningful for 2020. I don't know what the difference in growth rate is over the next 3 years is but perhaps 1% difference in growth rate of residential HSD net adds is a reasonable assumption.

 

The main difference is this: Charter is a pure play cable HSD company with focus and superior capital allocation (massive buybacks) which drives the Malone's famed levered free cash flow growth metric. Tom Rutledge is the best cable operator on the planet in my opinion.  Comcast on the other hand is squandering away the cable advantage on inferior media investments.

[CorpRaider]

On the other hand, Verizon isn't about to (maybe) come online with a ton of competition for Harry Potter World.

[KJP]

Great broadband quarter from Comcast.  That being said, I'm concerned about its apparently growing focus on content as illustrated by slide 3 here:  https://www.cmcsa.com/static-files/359c6115-3a94-4361-8821-69d759d24cc2

 

This is, of course, the same point that Munger_Disciple made earlier in the thread.  I think pursuing a content strategy is dicey, so this morning I swapped my Comcast for Altice USA, leaving my U.S. broadband investments around 75% Charter and 25% Altice.

[Munger_Disciple]

Great broadband quarter from Comcast.  That being said, I'm concerned about its apparently growing focus on content as illustrated by slide 3 here:  https://www.cmcsa.com/static-files/359c6115-3a94-4361-8821-69d759d24cc2

 

+1

 

Comcast shareholders would be best served if the company spins off the media business and let the crown jewel (cable) shine like Charter. Unfortunately it is unlikely to happen as Brian Roberts seems hell bent on pursuing streaming /content strategy in combination with cable. He even talked about how great Sky was doing in UK on the conference call (hard to believe given the Sky results), so he is still trying to justify the crazy multiple paid for it.

 

 

[Munger_Disciple]

https://www.cnbc.com/2020/10/24/big-media-companies-reorganize-for-world-of-50-million-tv-subscribers.html

 

Interesting tidbits from the article:

 

What about the smaller players? Can they compete for new originals against Netflix, Amazon and Apple -- companies with massive balance sheets -- to have the best content going forward?

 

“The answer is no,” said Bewkes. “These companies are competing against Netflix and Amazon, who have massively more scale for both subscription and advertising at a global level. They’re all going to be collapsed. Only Disney will have enough subscribers and global scale under a distinctive family brand to make it.”

 

Apparently Brian didn't get the memo.

[KJP]

Another great cable/broadband quarter and year from Comcast:  https://www.cmcsa.com/static-files/352acf2c-795f-40de-af83-0bd7637b2f62

 

Annual unlevered, pre-tax FCF from the cable segment is up 16% over 2019.  But I still prefer Charter and Altice because Comcast appears to be committed to diverting cash to things like Peacock and Sky. 

[dwy000]

Another great cable/broadband quarter and year from Comcast:  https://www.cmcsa.com/static-files/352acf2c-795f-40de-af83-0bd7637b2f62

 

Annual unlevered, pre-tax FCF from the cable segment is up 16% over 2019.  But I still prefer Charter and Altice because Comcast appears to be committed to diverting cash to things like Peacock and Sky.

They added more wireless lines in 4Q than Verizon.

[Munger_Disciple]

Annual unlevered, pre-tax FCF from the cable segment is up 16% over 2019.  But I still prefer Charter and Altice because Comcast appears to be committed to diverting cash to things like Peacock and Sky. 

 

I think Charter's cable business is the best of the bunch; great focus on HSD, good growth opportunity and awesome capital allocation. Comcast's cable business is far superior to Altice's (due to scale and competitive dynamics) but unfortunately they squander the advantage of cable business on NBCU and Sky which are mediocre businesses at best. Given Altice's focus and superior capital allocation, I agree that Altice is a better bet than Comcast.

[Spekulatius]

Shots fired for wireless offering. This looks quite attractive to me, even though I am not currently a Comcast customer.

https://finance.yahoo.com/news/comcasts-xfinity-mobile-unlimited-5g-plans-125738155.html

[dwy000]

2 hours ago, Spekulatius said:

Shots fired for wireless offering. This looks quite attractive to me, even though I am not currently a Comcast customer.

https://finance.yahoo.com/news/comcasts-xfinity-mobile-unlimited-5g-plans-125738155.html

My family is on xfinity Mobile and I will move over with this plan.  The only concern I have is that they do start throttling at higher usage (if I read it right)  

[KJP]

Given its history, I hesitate to take any strategic lessons from AT&T, but its decision to separate WarnerMedia from its connectivity business (wireless and fiber broadband) seems to confirm what most have been saying for years and what Reed Hastings knew all along: It generally doesn't make sense to combine content assets, which benefit from being platform agnostic, with a broadband provider. 

So where does that leave Comcast?  It appears to have the best broadband business in the US, but NBCUniversal + Sky are looking increasingly subscale.  Comcast may also be running out of time as a third international-scale content company (Netflix, Disney, now Warner+Discovery) gets built out in front of them. 

I doubt merging Comcast's content assets with ViacomCBS makes sense and, in any event, couldn't be done in toto because US antitrust authorities almost certainly wouldn't permit the NBC and CBS networks to be owned by the same entity.  I could see the new Warner/Discovery being a good home for Comcast's content assets because, among the IP of DC Comics, et al.  On the other hand, would antitrust authorities in the US actually permit such a combination, which would merge, among other things, two major movie studios (Universal and Warner Brothers)? 

Are there other potential merger partners for NBCU/Sky?  If not, what is the future of these businesses?

Edited May 17, 2021 by KJP

[CorpRaider]

Hollywood reporter floats NBCU looking at VIAC.  I don't want Bob Bakish and PlutoTV streaming head guy to lose their seats (then again who tf knows about this stuff...Jack Welch was apparently not good at business and Bill Gates might have some questionable judgment), but I could see value putting that Nickelodeon catalog through the parks division.  I can also see the value of putting the NBCU content through the cheap/profitable customer acquisition funnel:  PlutoTv. 

IDK about the networks.  CMCSA will have that pre-vetted if anything is announced.  It doesn't make a lot of sense that there would be problems given the reality of viewing and how people get their news now, but there are a lot of boomers in congress.

 

Anyone have the deal break fee on the WB transaction?  You have to think Roberts will lob in a bid if he thinks they are stealing it, maybe he can create a forced seller (again).  I'm sure he would love to get the potter rights and they are really more valuable in NBCU's machine. 

EDIT:  looks like maybe $720MM if Disca terminates and $1.77 bil if $T walks.

Edited May 17, 2021 by CorpRaider

[vince]

CorpRaider, if you look at the transaction you will see that Malone created the deal with that in mind.  I don't see how Comcast can disrupt it....the deal does not require a vote from T and the Disc vote is controlled by the deal creator.  I can see the smile on Malone's face imagining Robert's realization that the deal is bulletproof.....specifically for Robert's gun.