Comcast Corporation (CMCSA) is one of the largest media conglomerates in the United States and with an $87B market cap this is also one of the largest publicly traded companies. For comparison purposes, Comcast is almost identical in size to Disney (DIS) and its Magic Kingdom. Just like Disney, Comcast has very diverse entertainment interests that can be loosely grouped into four categories:
- Cable Communications - 22 million television customers, 18 million Internet customers, and 9 million voice customers
- Cable Networks - 15 National cable channels including USA and E!
- Broadcast Television - NBC
- Other - Film (Universal Pictures), Theme parks, and an arena in Philadelphia
I have been passively following Comcast as a media company for years and only recently began focusing on the stock as it continues to outperform. Below I have highlighted reasons why Comcast makes for a compelling investment.
Strong Ratings For London Games
Comcast's NBC owns the rights to televise the 2012 Olympics and early signs are pointing towards strong viewership. A strong indicator of the "periphery" sports also included in the Olympics is the EURO 2012 soccer tournament that includes the best national soccer teams in Europe. The EURO 2012 tournament recently completed and the ratings were been very strong. I am a new soccer fan but it is clear that soccer is still a fringe sport in the United States but if soccer can draw this well, it is not unfathomable to believe that the Olympics can do the same. In sum, if the EURO can do well, I have additional confidence that the summer Olympics will surpass the hype with the likes of Michael Phelps participating. Early ratings for the London games have been record setting and Comcast is a logical beneficiary. The sole fact that ratings for the Olympics could be better than expected will not significantly impact Comcast's earnings but this is precisely the type of irrational exuberance event that traders can exploit.
Election Season Will Be A Bonanza
The Presidential election of 2012 will be one of the most anticipated in recent decades as it will determine if President Obama will secure a second term or if Mitt Romney will take the leadership of the United States. The commentary coming from both parties is growing increasingly pointed and the buildup will only increase as the election nears. NBC already has $1.8B for fall advertising commitments and that number could ultimately rise. If the midterm elections are predictive of the Presidential elections in the fall, NBC and its affiliates could be the real winners on November 6th. In connection with my first point, NBC knows how important both the Olympics and election are and have secured Ryan Seacrest to be a reporter for these events. Regardless of what you personally think of Mr. Seacrest, there is no debate that he has the mass appeal that could bring more eyeballs and advertising dollars to NBC.
Yahoo And CNBC Join Forces
Yahoo! announced a partnership between Yahoo Finance and CNBC (51% owned by Comcast/49% owned by General Electric (GE)) in June that will further bring CNBC content to more users and drive advertising revenue. This strategic alliance makes sense for both parties as Yahoo will gain additional content for its website while CNBC will further its long term goal of expanding more onto the Internet. This appears to be the rare win-win agreements that will be a strategic victory for both parties.
Continued Ad Skipping DVR Spat
In May Dish Network (DISH) announced advanced advertising skipping technology called Auto Hop that severely threatens to erode advertising revenue for the major cable companies. This technology is not completely brand new and is likely to have a minimal impact on Comcast due to its limited availability but it is a reminder of how vulnerable to cable industry is to disruptive technology.
The legal battle is intensifying and recently Comcast filed for a patent that would effectively force its own advertising on consumers who utilized a commercial skipping DVR. Dish appears to be bending to the legal onslaught and has made changes to its Auto Hop technology that may appease infuriated network executives.
Comcast has shown me time after time that it is willing to innovate and at least defend itself actively. Nimble companies make for great investments and Comcast is proving that.
Due For A Pullback?
Comcast has been one of the better performing stocks in 2012 and has outperformed the S&P 500 by 25% this year. The 35% surge this year has the stock trading a mere two percent from its 52-week high. This recent climb has pushed the TTM and forward PEs to 20.0 and 14.7, respectively. I am always hesitant about buying a company near its 52-week high but perhaps the Olympics and the election season are exactly what the company needs to jump higher.
Comcast reports second quarter 2012 earnings on Wednesday before the market opens. I believe that Comcast offers potential intermediate term gains and I recommend further research into initiating a long position.
Disclosure: I am long GE.