Comcast Corp. (CMCSA, Financial) had a decent 2020 despite the obvious tailwinds associated with the cinema and theme park businesses related to the Covid-19 pandemic.
The company's core cable business managed to deliver 2 million net broadband additions during the year and management made a brave attempt to capitalize on the pandemic by launching Peacock, its streaming service. Comcast has excellent revenue generation potential from the high-quality content on this platform, where it is attracting a decent subscriber base.
The company also has other interesting growth initiatives related to Peacock, like the Xfinity Mobil, Flex and Sky Q. Its traditional businesses, such as the NBCUniversal theme parks and theatrical releases, are expected to see a recovery in the latter half of 2021 owing to successful vaccine rollouts and the increasing confidence of comsumers to venture outside their homes.
Financial performance
Comcast reported a top line of $27.71 billion for the fourth quarter of 2020, which was a nominal drop of 2.43% as compared to the $28.40 billion number reported in the prior-year quarter. Despite the negative impact of the coronavirus on the company's theme park and movie businesses, it still managed to beat the average Wall Street expectation of $26.79 billion. These revenues translated into a gross margin of 65.94% and an operating margin of 14.14%.
The company reported net income of $3.38 billion and adjusted earnings per share of 56 cents, which outperformed the analyst consensus estimate of 48 cents. Comcast was able to generate close to $5.04 billion in operating cash flows, which should shoot up with the rise in Peacock subscriptions.
Peacock and Flex upside
Comcast's premium ad-supported streaming service, Peacock, has already reached close to 33 million sign-ups within just six months of its nationwide launch. The management's pandemic-led decision to release its titles directly to consumers via premium video on demand has been a key factor for this accelerated momentum. The company is streaming popular shows like "The Office" and "Modern Family" and also has the World Wrestling Entertainment Network to move exclusively to Peacock's service from the month of April. This is expected to draw a large number of subscribers to its platform.
Apart from that, Comcast offers Flex, a device that congregates multiple streaming apps in one place, to all of its broadband-only customers for free. Apart from the presence of Netflix (NFLX, Financial), Amazon Prime (AMZN, Financial), and Hulu, the platform recently added HBO Max to its portfolio and is planning to add Disney+ (DIS, Financial) in the near term. As per management, Flex is an excellent product that can drive solid retention outcomes and may open new doors for the company in the streaming space.
Key developments
Comcast is launching Disney+ and ESPN+ on its Xfinity X1 and Xfinity Flex platforms, which will give consumers an integrated approach, allowing them to use voice to call up program titles. The program will be integrated into Comcast-wide content libraries. Moreover, Xfinity Mobile is expected to be the nation's first wireless service that combines Verizon's (VZ, Financial) 4G LTE wireless network with 19 million Xfinity Wi-Fi hotspots to deliver a cost-effective wireless experience. Management said customers will be able to save up to 30% on their monthly wireless bills with the Xfinity Mobile service. Additionally, the company is upgrading to DOCSIS 3.1, which has enabled the company to compete against AT&T's (T, Financial) Fibre To The Home (FTTH) program. These factors taken together are expected to boost growth prospects for Comcast in the long term.
Final thoughts
Despite the fact Comcast's theme park business and film revenues were adversely affected due to the pandemic, the stock has appreciated by more than 60% over the past 12 months. This increase was largely driven by an impressive growth in high-speed internet customers.
Currently, the company is trading at an enterprise-value-to-revenue multiple of 3.34 and a price-earnings ratio of 24.21, which are on the higher side. The high valuation multiples indicate a strong investor optimism associated with the recovery of the pandemic-hit segments of the business. In my opinion, while the company may be modestly overvalued, its top-line recovery in the latter half of 2021 should result in strong shareholder value creation.
Disclosure: No positions.
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