Comcast (CMCSA) has been a very successful player in the media industry, particularly in the last few years. I feel like the company is underappreciated by many in the investment world as it is rare to see investors talking or writing about the company. In the last year, the company returned 24% to its investors excluding dividends. Similarly, in the last 3 years, the company's return was 100% excluding dividends. In the last 5 years, the company's return was 13.11%, excluding dividends.
One of the most popular products offered by Comcast is XFINITY. This product has and will continue to drive growth for the company for years to come. The company allows its customers to access content in multiple platforms, allowing it to be very flexible. The company's video on demand library offers 30,000 choices, up from 1,000 a few years ago. The company's TV Everywhere project helps carry the content to computers, laptops, mobile devices and tablets, reaching millions of users every day.
Comcast's products takes the TV experience one step further and allows customers to be able to rewind TV shows or watch a missed TV episode at a later time. In addition to Comcast's own NBC Universal, the company also has agreements with Disney (DIS) to distribute its content in multiple platforms.
Comcast's next promising project is SteamPix. This project aims to fill a gap in the media by offering cheap streaming (i.e., only $4.99 a month) of full seasons of TV shows, many movies and other content. The content offered by this product is viewable on computers, Ipods, Ipads, Iphones, XBoxes and many other devices. This product will pose a serious competition against Netflix (NFLX).
The company reaches 52 million people nationwide and its products have high penetration rates with the video business having a rate of 43%, broadband having a rate of 35%, voice business having a penetration rate of 18%. This shows that the company has very wide footprint in the industry and it can continue leverage such footprint to see further growth.
The company enjoys great gross margins in many segments of its business. For example, Comcast's video business has a gross margin of 50% and its broadband segment enjoys a gross margin of 90%. Between 2007 and 2011, the company's video business lost millions of subscribers due to the recession and increased competition, however things are starting to look better for the company again as of 2012. In order to keep growing, the company kept making positive changes to its products. For example, it increased number and variety of the channels it offered, the improved the video quality as well as data transfer speed, and invested into foreign language channels. The company also invested in improving its customer service in order to ensure high customer retention.
Furthermore, the company will continue to unleash new projects and products. One example is Xcalibur. This is a cloud-based interface and it is currently being test driven by 1,000 different households. If everything goes as planned, this product will come out in the market this year. The product will have a unique user interface and easy accessibility. Because it's going to be on cloud, the company will be able to update and modify the product every easily based on user feedback as time passes. Additionally, the product will work similar to iPad applications and users will be able to use their iPhones or iPads as remote controls with this new product.
The company has been increasing its broadband internet speed for a while and it will continue to do this in order to remain its competitive advantage. The company currently is able to offer a variety of internet connection speeds including 105, 50, 25, 15 and 10 megabits to over 90% of its customers. Speed is particularly a concern as many people use internet to watch TV shows, sports events and movies or play games. Comcast offers the most variety of speeds out of all DSL providers.
Recently, the company signed a partnership deal with Verizon Wireless (VZ) where the two companies will market their products jointly. This move should increase market share for both companies in their fields of operation.
NBC Universal will provide many growth opportunities for Comcast. In 2011, Comcast launched new TV shows in its networks, renewed its broadcasting rights for NHL and PGA, bought theme parks in Orlando, invested to improve some of the existing parks, started new film projects, made bids for broadcasting rights of Olympics and FIFA World Cup, and renewed its contract with NFL to continue airing Sunday Night Football. Many of these investments already started to pay off and many others will start paying off soon.
The company's revenues increased by 47% and operating cash flow increased by 26% in 2011 compared to 2010. This is partly due to Comcast's purchase of NBC Universal and Universal Orlando. Regardless, this is an impressive growth rate. The company was able to achieve free cash flow of $2.52 per share in 2011.
In 2011, the company increased its dividend rate by 44% to 65 cents per share per year. Additionally, the company also approved spending $6.5 billion on stock repurchases. Comcast has been able to raise its dividends every year for several years and the company's strong cash flow indicates that its dividends are pretty safe. Currently the company's dividend rate is not very high, but if it keeps increasing at this rate, it will become significant in the years to come.
In conclusion, there are many growth opportunities for Comcast in the future. The company is well-run and current management is growth oriented. The company is not shy about investing its resources aggressively for growth. The company's fundamentals look healthy and it will result in nice returns for growth investors in the years to come.