The backdrop remains seemingly dark. Advertising Industry Research Team eMarketer recently forecast TV ad spending to fall nearly 3% this year to $70.3 billion, confirming last year’s $72.4 billion was an industry high. With the exception of next year’s political ad binge, eMarketer forecasters estimate TV ad revenue will decline at least through 2023.
Blame the so-called cord-cutting movement, of course. In turn, pity cable TV middlemen like Time Warner/Spectrum parent Charter Communications or satellite TV provider DISH Network.
Just don’t group Comcast (NASDAQ: CMCSA) along with the rest of the industry’s most recognizable names. Comcast is doing very well. You see, cable television may be its biggest operation, but it’s still a relatively small part of the revenue mix, and most everything it does is doing quite well.
The numbers don’t lie
For investors keeping an eye, Comcast lost an additional 238,000 video subscribers during the third quarter. That’s a lot, but not an unusual pace for the cable TV industry. The Kagan research arm of the S&P Intelligence Group estimates that the entire U.S. cable industry lost an additional 1.9 million paying customers in the third quarter, and UBS estimates that total losses next year will reach 6.2 million. That’s down slightly from this year’s pace, although a significant portion of the 85.1 million customers were still signed up at the end of October.
Luckily for Comcast, it’s not a crippling headwind. Video is the company’s biggest revenue driver, but it still only accounts for a fifth of revenue. Broadband internet service is growing in importance as a source of revenue, and it’s interesting to note that Sky’s direct-to-consumer product is Comcast’s third arm, accounting for almost 14% of its business.
The company doesn’t break down its EBITDA results in such detail, although it’s still possible to draw meaningful conclusions from what’s on offer. To wit, the cable communications pool that handles both the Internet and cable TV is still a cash cow, accounting for nearly two-thirds of Comcast’s total revenue before allocating interest payments, taxes and l ‘amortization. Its cable business took a hit last quarter, leading to a $163 million sequential drop in total EBITDA. He’s survived worse, though, and should ultimately shrug off that headwind as well.
Two related metrics illustrate why the business can continue to grow.
Comcast, in short, continues to add paying customers. The loss of cable subscribers clearly runs counter to this progress. But that downside is more than offset by the addition of professional video subscribers, high-speed Internet customers, and – surprise! — wireless phone services are being launched as a way to create bundles for consumers who are increasingly demanding them.
Perhaps most important is Comcast’s ability to monetize these members. Average revenue per user at the end of the third quarter was $156.72 per month, of which $62.34 was recognized as EBITDA. These numbers increased by 0.5% and 3.2%, respectively, year over year.
The numbers won’t qualify Comcast as a growth stock, but they’re hardly cause for panic.
Assemble the Comcast Puzzle Pieces
Most investors are surprised to learn that the aging cable giant has remained relevant in the new digital world, and to be clear, Comcast is hardly thriving. It was forced to acquire operations like Sky and shoulder the start-up costs of a new wireless service (albeit with help from Charter and Verizon) in order to ensure an admittedly lukewarm growth. It’s also embracing — rather than resisting — video streaming, announcing in September that it would provide a free streaming player to Internet customers who aren’t also cable customers. It’s a pretty restrictive device, but it’s another step towards retaining those customers.
The strategy seems to work all the same. It’s sometimes clunky, to be fair, and there’s no avoiding the reality that traditional cable TV is a sinking ship. Comcast can only hope to slow this deterioration. What he was unable to contain on that front, however, he was able to make up for.
Most compelling about the company’s revenue mix is the number of business types Comcast finds itself in. Normally, such diversity can cause an organization to shed certain assets in order to better focus. This particular combination works, however, because all of these divisions are intertwined and enable efficient cross-use of content and properties. Universal Studios’ blockbuster movie franchises, for example, are run in its theme parks and also effectively repurposed as licensed content.
This is an area, in fact, where Comcast could arguably do more – cross-market services and content for existing customers who might currently only pay for one particular product. About a third of its customers only subscribe to one of its services, and another third only pay for two.
Still, there’s a reason the cord-cut apocalypse isn’t bringing Comcast along: Comcast just isn’t that dependent on cable TV.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.