On Jun 28, leading cable MSO (multi service operator) and media and entertainment firm Comcast Corp.CMCSA was downgraded by a notch to Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While the mobile venture with Charter Communications boosts Comcast’s wireless services businesses, we believe that competitive threats posed by online video streaming providers are a concern. Such mixed ventures complement Comcast’s current rank.
Let’s have a look at the upsides and downturns which are likely to affect Comcast’s price and performance in the coming days.
Comcast is working toward 5G network deployment and plans to enter the U.S. wireless industry through collaboration with Charter Communications Inc. CHTR . These cable companies have agreed to join operations on their wireless services businesses to explore opportunities, accelerate and enhance each other’s ability to participate in the national wireless marketplace. For this wireless venture, the companies will be using U.S. telecom behemoth Verizon Communications Inc.’s VZ wireless network, through a Mobile Virtual Network Operator (MVNO) agreement. To this end, per the latest The Wall Street Journal report, both these cable companies might be working on plans to ink a network-resale agreement, which will enable them to resell services on Sprint Corp.’s S wireless network or may be mulling over to acquire Sprint.
The price performance of Comcast has been encouraging over the past three months. Comcast’s share price inched up 3.41%, outshining the Zacks categorized Cable Television industry’s 3.17% gain over the same time frame.
Comcast has forayed into the over-the-top video delivery market by launching its Internet TV service, Stream. We believe that this will enable the company check customer churn and providing viewers with more streaming options and flexibility at competitive prices. Further, Comcast’s Cable business is doing well and the NBC Universal segment is witnessing significant improvement. The digital media brands are gradually gaining significant market traction especially among the young generation. Filmed Entertainment revenues were $1,981 million, up 43.2% from the year-ago quarter.
Business Services has been witnessing strong momentum and continues to represent an attractive growth opportunity for the company. Evidently, in the first quarter of 2017, Business Services revenues were $1,490 million, rising 13.6% year over year.
The company also expanded its theme park business through the purchase of the remaining 49% stake in Osaka-based Universal Studios Japan (USJ) for $2.3 billion. We believe that these efforts have helped the company witness $1,118 million (up 9% year over year) revenue growth in its Theme Parks business in first-quarter 2017.
Further, the company’s continuous efforts to strengthen its foothold in the Internet of Things (IoT) space and the lucrative digital media market through different deals looks good.
However, intense competitive threats, consolidation-related woes, lawsuits and their related fines, loss of customer base and a highly-leveraged balance sheet remain headwinds to the upcoming results of Comcast. Online video streaming service providers such as Netflix Inc. NFLX , Hulu.com, YouTube etc. pose severe competitive threats to cable TV operators, thanks to the extremely cheap source of TV programming which doesn’t fall out of demand even in times of volatile economic conditions.
Another major concern for Comcast is its spiraling programming expenses. Operating costs and expenses totaled $13,431 million in first-quarter 2017, up 8.1% year over year.
The recent loss against TiVo Corporation over a patent licensing dispute is a major setback for Comcast.
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