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Summary

  • CMCSA continuously working to grow cable segment’s subscriber base and improve churn.
  • A successful TWC and CMCSA merger will strengthen company’s market position.
  • NBCUniversal is adding to company’s top-line with strong growth potentials.

I am bullish on Comcast Corp. (NASDAQ:CMCSA); the company is leading U.S. cable markets. Over the years, the company has been relying on innovative service offerings to drive revenue growth. Also, the company's top-line has the strong backing of NBCUniversal, which is benefiting from growth in live streaming of videos. Moreover, the proposed merger of CMCSA with Time Warner Cable (NYSE:TWC) will help CMCSA increase its market share and further strengthen its market dominance. I believe CMCSA is poised to grow in the long run, with its well thought strategic initiatives across its segments.

Cable Segment Leader

The largest U.S. cable company, CMCSA, is well placed amongst its peers, despite the intense competition in the industry. With its constant efforts to differentiate itself from peers through innovations, the company's cable segment's revenues have been steadily growing over the past few quarters. Also, the wider scale acceptance of X1 operating system, which offers an attractive combination of internet content, cable TV, on-screen applications, a five-tuner DVR and access to on-demand programming, has been supporting the segment's performance in the recent past. Owing to wide scale acceptance by customers, the company is planning to accelerate the use of X1 by adding 15,000-to-20,000 X1 boxes per day, which I believe will positively affect the company's top and bottom lines.

Moreover, with continuous improvements in the company's broadband services, CMCSA has been adding subscribers to its broadband subscriber base. In its attempt to retain the existing broadband customers, the company has taken the initiative to benefit its existing customers by increasing its Wi-Fi hotspots with its XINFINITY program, which has turned the Wi-Fi router of every CMCSA customer into a Wi-Fi hotspot; CMCSA customers will be able to use Wi-Fi via the nearby presence of another of the company's customer. I believe that with this initiative, the company will be able to attract more subscribers and retain existing subscribers, which will portend well to grow the long term broadband subscriber base and will also improve the company's churn.

In addition, the company has recently acquired PowerCloud Systems, a company that manufactures devices that measure broadband usage in a home or business place. In order to make the usage of broadband more efficient, the company will be soon selling PowerCloud products to its existing customers. Therefore, I believe that in coming quarters, this acquisition will help generate better returns and margins from existing broadband customers.

The following table shows year-over-year growth in the Cable segment's revenues and the company's broadband subscribers.

1Q13

2Q13

3Q13

4Q13

1Q14

Cable Revenue

6.4%

5.8%

5.2%

5.2%

5.3%

H.D Subscribers

6.5%

6.7%

6.6%

6.7%

6.3%

Source: Company's Quarterly Earnings Report

TWC + CMCSA Merger

In its attempt to keep a strong position in the industry, CMCSA is eyeing a merger with TWC, the second largest U.S. cable company. The merger is subject to approval from regulatory authorities. If the company succeeds in obtaining regulatory approval, the merger will significantly increase CMCSA'a market share from 37% to 57%. The table below shows the U.S. cable TV current market shares, and post merger market shares (if the merger is successful).

Pre-Merger (Current) Market Share

Post Merger Market Share

Comcast

37%

57%

Time Warner

20%

-

Verizon (NYSE:VZ)

8%

8%

Cox

8%

8%

AT&T (NYSE:T)

8%

8%

Charter

7%

7%

Cablevision

5%

5%

Bright House

3%

3%

Suddenlink

2%

2%

Mediacom

2%

2%

I believe the merger will portend well for CMCSA's future prospects, as the combined company will effectively handle competitive pressure from the leading satellite TV providers in the U.S. Moreover, CMCSA expects that the merger will also improve the company's operational performance, enabling the combined entity to generate $1.5 billion in synergy. Also, the managements of the two companies believe the deal will be accretive to cash flows.

However, despite the benefit for CMCSA, the merger requires regulatory approval. As the proposed merger is likely to give birth to serious competitive concerns in the Pay TV Industry, there remains the risk that the merger will be blocked by the FCC. DISH Network has recently raised concerns regarding the merger and appealed to the FCC to block it.

NBCUniversal

Over the past few quarters, as a result of the combined effect of the broadcasting momentum of cable network, strong results of low cost films and constant innovations in theme park, CMCSA has been delivering decent revenue growth for its NBCUniversal segment.

Moreover, the success of NBC's late night combo of Jimmy Fallon and Seth Myers strongly backed the company's broadcasting network, which outpaced the big four networks with its average 2.7 rating from September to May. The impressive results of CMCSA's network highlight that the company is well positioned to grow its network and will be the number one network in the U.S. The following graph shows the year-over-year growth in NBCUniversal's revenues.

Source: Company's Quarterly Earnings Report

Conclusion

Given the company's leading position in the U.S. cable market, its continuous efforts to grow the cable segment's subscriber base and improve the churn will keep the company on track to maintaining a dominating position in the industry. Moreover, the TWC and CMCSA merger, if successful, will further strengthen the company's position in the U.S. cable market. In addition, NBCUniversal is also adding towards the company's top-line with its strong growth potentials. Due to the aforementioned reasons, I am bullish on the stock.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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