Comcast (CMCSA) has reported 2012 first quarter financial results and the company put up a very nice quarter. Compared to the 2011 first quarter, Comcast's revenue was up 23% and net income increased by 32% to 45 cents per share. The 45 cents per share handily exceeded the Wall Street consensus estimate of 42 cents. The company did well in all of its lines of business including cable TV, high-speed Internet, voice services, business services and the recently purchased NBC Universal. As a stock investment, Comcast appears to be hitting on all cylinders, the stock price is in line with growth rates and long-term investors have a lot to look forward to.
As I listened to the earnings conference call, my thoughts turned to the idea that this company - Comcast - continues to provide leading edges services to customers and continues to develop and push technology to make the Comcast product offerings more attractive and harder for potential customers to select another provider. So I started to think about which companies could have the business plans stymied, slowed or reversed by the growth and products coming from Comcast. Here are a few companies which came to mind:
Netflix (NFLX): Netflix sits in the middle of the Comcast business offerings. The company must buy content from provider such as Comcast's NBC-Universal division and Comcast provides the pipe Netflix uses to deliver product. If it chose to, Comcast could seriously hurt Netflix's business. I believe the effects of Comcast products like its growing video-on-demand - 400 million views per month! - and TV Anywhere initiatives provide competition to Netflix which limits the Netflix growth potential but Comcast kind of needs to keep Netflix functioning as a competitor. However, the competitive offerings from Comcast make serious growth for Netflix in the U.S. doubtful.
CenturyLink (CTL) and Frontier Communications (FTR): These two telecom companies are trying to counteract their slowly eroding telephone land line businesses by offering high-speed Internet to retail and business customers plus packaging multiple product services - including digital TV - to increase revenue per service. Comcast appears to be well ahead of CenturyLink and Frontier in offering leading edge products and higher Internet speeds. A comparison chart of business Internet packages shows Comcast leading its offer with 12 Mbps download speeds while competitors offer about half that speed for the same cost. Comcast generates about $3 billion of free cash flow per quarter and pays out $300 million in dividends. The smaller competitors attract investors with high yields. They spend more of their cash available on dividends, leaving much less to spend on developing products and marketing.
Stock investing is always a matter of trade-offs - picking which stocks appear to offer the best opportunity for profits. Sometimes we forget to look at what the competition is doing. In this case - if Comcast is the competition - I think the companies discussed above may have trouble meeting their own business goals. I am interested to hear reader thoughts on whether they believe Comcast does affect the results of Netflix, CenturyLink, Frontier Communications or others in the digital TV, high-speed Internet sectors. Also, feel free to comment if I am overstating the case for Comcast as a dominating player.