Will Comcast Pursue M&A Activity?
Comcast’s operational metrics
In 2017 and beyond, Comcast (CMCSA) expects its FCF to grow. However, it didn’t rule out some fluctuations due to continued investments in its businesses. Comcast had a free cash flow (or FCF) of $2.6 billion in fiscal 4Q16, up 64.2% YoY (year-over-year).
In its fiscal 4Q16 earnings call, the company announced a 2017 dividend of $1.26 per share, a growth of 15%. Comcast indicated that it was increasing its dividend for the ninth consecutive time. It grew at a CAGR (compound annual growth rate) of 22.2% between 2009 and 2016, beating the S&P 500. The company also announced that it intends to buy back shares worth $5 billion in 2017.
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Comcast’s view of acquisitions
Considering these operational metrics, Comcast was asked at the Morgan Stanley Technology, Media & Telecom Conference late last month about whether the company intended to pursue M&A (mergers & acquisitions) activity this year. The company stated that it didn’t feel the need to acquire another company but will continue to invest in content and its theme parks.
Comcast also pointed out that its acquisitions of assets including AT&T’s (T) Broadband business in 2001 and NBCUniversal were bought at a relatively low value. However, after the acquisitions, these assets have increased in value.
The company also stated that its venture arm, Comcast Ventures and Atairos, were also looking at investing in start-ups where Comcast could get a good return on its investment.
Early last year, Comcast’s venture capital company Atairos had invested $250 million in Groupon (GRPN). Atairos was created in 2015 when Comcast invested $4 billion into the company. Atairos was set up by Comcast’s former chief financial officer Michael Angelakis.
Comcast’s acquisition of NBCUniversal has been a game changer for the company. In 2011, Comcast closed the acquisition of a 51% stake in NBCUniversal from General Electric (GE) for a cash payment of $6.2 billion. The chart above indicates the ownership structure in 2011 when Comcast acquired a 51% stake in NBCUniversal. In 2013, Comcast acquired General Electric’s (GE) remaining 49% stake in NBCUniversal for $16.7 billion.
Comcast makes up 0.82% of the SPDR S&P 500 ETF (SPY). SPY invests 3.4% of its holdings in the computer sector.