Track a recovering media giant and this rising star
A new streaming service puts this pair in the spotlight, argues our overseas investing specialist.
23rd September 2020 10:50
by Rodney Hobson from interactive investor
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A new streaming service puts this pair in the spotlight, argues our overseas investing specialist.
Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.
Results so far this year from telecommunications conglomerate Comcast (NASDAQ:CMCSA) have been disappointing after years of steady growth, but a new streaming service from its NBCUniversal (NBCU) subsidiary could help put the group back on the right track.
The streaming service is called Peacock, and it makes money from advertisements and from subscribers who can access more content and remove adverts. It launched to NBCU’s customers in April and then more widely in the United States in July, mainly through a licensing agreement with ViacomCBS (NASDAQ:VIAC). It has already reached 15 million sign-ups.
A big breakthrough, though, has come with the signing of an agreement this month with Roku (NASDAQ:ROKU), which sells streaming devices and also cashes in on a growing advertising business feeding into tens of millions of users.
Peacock was initially not available through Roku or Amazon (NASDAQ:AMZN) because it did not want to concede too large a slice of revenue. Roku was known to want a 30% cut but presumably has conceded a better deal, although terms have not been disclosed. Roku claims to have signed “a meaningful partnership on advertising”.
Peacock is also available on Apple TV from Apple (NASDAQ:AAPL), Chromecast from Google (NASDAQ:GOOGL) and a variety of smart TVs and videogame consoles. Its TV shows including Ray Donovan, The Affair, Charmed, Undercover Boss, The Game, Everybody Hates Chris and Real Husbands of Hollywood.
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Comcast, which owns pay TV service Sky in the UK, reported revenue down 12% to $23.72 in the second quarter of 2020, with net income 6.1% lower at $3 billion. Although chairman and chief executive Brian Roberts claimed this to be a solid performance, highlighting the resilience of the company, this was hardly a stellar showing. It was, however, better than the first quarter when net income slumped by almost 40%.
While Comcast has been successful in signing up new customers in the first half, revenue and profits were hit by a fall in revenue from advertising as sports events were cancelled due to Covid-19.
Before that, revenue growth had been rising solidly, from $80.4 billion in 2016, to $84.5 billion in 2017, $94.5 billion in 2018 and $108.9 billion in 2019.
Comcast shares have recovered from a low of $32.42 at the end of March, but are still below the January peak of $47.50.
Source: interactive investor. Past performance is not a guide to future performance.
Roku (NASDAQ:ROKU) low point was $63.84 in March, but the recovery has been spectacular, with the shares reaching $194, way above the $139 level in mid-February before the stock market collapse. The deal with NBCU has been a major boost to its share price, especially as Peacock’s rivals in providing streaming may feel pressured into seeking a similar agreement with Roku.
Source: interactive investor. Past performance is not a guide to future performance.
In the short term both companies will benefit from any further lockdowns or restrictions on going out as people are forced to seek entertainment at home. Signs of a second wave of Covid-19 in Europe and the UK, plus its persistence in many US states, support this view.
In the longer term, the growth in demand for streaming, as demonstrated by the remarkable international success of Netflix (NASDAQ:NFLX), will provide a continuing boost, although the market is admittedly highly competitive, with Disney (NYSE:DIS), Apple (NASDAQ:AAPL) and Warner Music Group (NASDAQ:WMG) recently launching their own streaming services.
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Hobson’s choice: Buy Comcast up to the previous peak of $47.50. Analysts are broadly recommending buys, although those setting $54 as a target are probably being too optimistic for now. The best chance to buy Roku has long since gone, but it could be worth watching for any chance to buy on weakness. Roku shareholders could consider banking some profits, but it looks too early to get out altogether.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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