Comcast Shares Pop on Goldman’s Optimism


Jul. 29 2019, Updated 6:44 a.m. ET

Comcast (CMCSA) shares popped after Goldman Sachs issued a positive note on the company recently. Goldman upgraded its rating for Comcast to a “buy” from a “hold” and lifted its price target to $54 from $44, according to CNBC. Comcast shares are currently trading in the vicinity of $44, so Goldman’s price target implies substantial upside potential. Goldman is of the view that Comcast’s businesses are on solid ground. It believes Comcast’s earnings will continue improving for the next several years.

Comcast’s revenue rose 18% YoY (year-over-year) to $27 billion in the first quarter. The company posted a profit of $3.6 billion, up from $3.1 billion in the previous year’s quarter. Comcast released $869 million to its shareholders in the form of dividends during the first quarter.

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One Comcast business that’s been receiving attention lately is its broadband arm. The shift away from traditional TV viewing to online video streaming is causing Comcast and other pay-TV companies to lose customers. However, it’s also created a broadband boom. Demand for broadband is on the rise as consumers seek high-speed Internet to download or stream movies and shows. As a result, Comcast is winning over more broadband customers. In the first quarter, Comcast added 375,000 broadband customers after adding 1.4 million broadband customers in 2018.

Comcast’s broadband revenue jumped more than 10% YoY to $4.6 billion in the first quarter. Broadband revenue rose 8.6% YoY at Charter Communications (CHTR) in the quarter.

Comcast is fighting hard for ad dollars

The pay-TV market is shrinking, and a lot of TV advertising dollars are shifting to digital platforms. But Comcast is fighting hard to keep its advertising revenue flowing through innovative TV advertising solutions. In June, Comcast launched a new initiative through which it sought to boost the appeal of TV advertising for brands.

The goal of Comcast’s On Addressability initiative is to enable brands to deliver targeted TV commercials. The industry calls this “addressable TV advertising.” For example, Comcast wants to enable marketers to target their campaigns to specific households or audiences. The goal is to maximize the impact of TV advertising.

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Google (GOOGL) and Facebook (FB) have been successful at pulling advertising dollars for one major reason: they excel at enabling brands to tailor their marketing messages to specific audiences. Google’s ad revenue will come to $107.3 billion this year, according to eMarketer estimates. Facebook will pull $67.4 billion in ad revenue this year. The advertising gains at Google and Facebook have come mostly at the expense of TV companies such as Comcast.

Comcast is rising to challenge these digital ad giants by bringing ad targeting to TV—and it’s not doing it alone. The company has recruited Charter and Cox Communications into its On Addressability initiative.

Comcast is pursuing a $3.4 billion revenue opportunity

The future looks bright for companies that want to provide targeted or addressable TV advertising. The addressable TV advertising market in the US is growing rapidly, with eMarketer expecting it to reach $2.5 billion in 2019. The addressable TV ad market in the US is on track to reach $3.4 billion by 2020.

The timing of Comcast’s addressable TV advertising initiative couldn’t be more perfect. Some large brands have become wary of digital advertising following incidents in recent years when their commercials appeared in digital videos that promoted hate or violence. In 2017 and 2018, a number of large brands, including Johnson & Johnson and AT&T, suspended running ads on YouTube. They made the decision after their campaigns appeared next to offensive content on the platform. YouTube is a Google property.

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To minimize risks to their brand reputation, some companies are exploring cutting their digital advertising budgets. In contrast, they want to boost spending on safer channels such as TV. Procter & Gamble (PG) plans to boost its ad spending on platforms that are free of offensive content, according to Bloomberg. PG is one of the world’s largest advertisers in terms of spending. Comcast’s addressable TV ad solution could appeal to companies that are dissatisfied with digital advertising.

Comcast seeks greater international exposure

Besides pursuing broadband dollars and innovating to boost its ad sales, Comcast is also expanding overseas. Last year, Comcast bought British broadcaster Sky, which operates in several European countries and serves close to 30 million customers. Comcast relies heavily on the US market for its revenue, but it expects that to change with Sky on board. The company estimates that with Sky, its international operations will contribute 25% of its total revenue compared to the current 9.0%.

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After swallowing Sky, which brought it $4.8 billion in revenue in the first quarter, Comcast is pursuing more international opportunities. The company is in talks to purchase a large stake in Indian mass media group Zee Entertainment. The talks have been on since early this year, and now they appear to have gained momentum. According to a new report from the Economic Times, a Comcast-led consortium is nearing a deal to purchase a stake in Zee.

The consortium includes the Rupert Murdoch family, which last year sold its interest in Indian pay-TV network Star India to the Walt Disney Company. The deal also involved the transfer of other US assets at a valuation of $71.3 billion.

Comcast’s purchase of a stake in Zee could see it kill two birds with one stone. First of all, the purchase will make Comcast a more global company. Second of all, it will boost Comcast’s ad business. India’s advertising industry is booming. The ad market in India was worth $9.7 billion in 2018, according to Zenith data cited by Reuters. The market is on track to grow to $14.2 billion by 2021.

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Comcast’s Xfinity Mobile opens up to non-phone devices

Comcast continues to expand its wireless service, Xfinity Mobile. Comcast launched the wireless service with support for smartphones in 2017. Now it’s expanding it to support non-phone devices as well. The company recently added support for Apple’s iPad and Apple Watch.

The Apple Watch became the first non-phone device to work on the Xfinity Mobile network. The Apple Watch is the world’s most popular smartwatch brand. As a result, Apple captured a 35.8% share of the global smartwatch market in the first quarter, according to data from Counterpoint. Samsung captured an 11.1% share of the smartwatch market, and Fitbit captured a 5.5% share of the market.

Comcast’s adding support for popular devices such as the Apple Watch could bring a huge boost to its Xfinity Mobile wireless business. Xfinity Mobile is one of a few US wireless services that are run by cable giants. Another is Spectrum Mobile, which is run by Charter. Altice USA, another US cable major, is preparing to launch its own wireless service.

Comcast is opening its wireless service for non-phone devices in anticipation of heightened competition. T-Mobile and Sprint, two of the country’s largest wireless providers, are preparing to join forces in a merger. T-Mobile and Sprint agreed to merge their operations in a $26 billion deal they reached a little over a year ago. They’re stilling waiting for regulatory approval to close the transaction.

Comcast finished the first quarter with 1.4 million subscribers on its Xfinity Mobile service. A year ago, it had 600,000 subscribers. Comcast added 170,000 Xfinity Mobile subscribers during the first quarter. Its shares could pop again if its second-quarter results impress. It’s scheduled to report its results on July 25.


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