Despite a tumultuous period of change in the entertainment industry over the past several years, Comcast Corp. (CMCSA, Financial) has remained resilient.
The diversified entertainment conglomerate's shares have dropped more than 30% over the past 12 months along with the broader communication services sector, making it a potential value opporturtunity.
While an investment in Comcast could be rewarding, it is important for investors to understand the nature of conglomerates when researching their options and pay attention to any developments, whether internal or external, that might affect its stock performance. Despite this, I believe investing in a diversified conglomerate provides considerable peace of mind due to its exposure to a wide number of industries and revenue streams.
Furthermore, Comcast is one of the most attractive income options at this time. During the third quarter, the Philadelphia-based company returned a whopping $4.7 billion to shareholders, $3.5 billion of which was in the form of share repurchases. The company also has a fairly high yield of 3.07%, boasting five years of growth in dividend payouts.
With its reach across the U.S., Comcast has created a powerful moat. Its investment case is boosted by its low payout ratio, consistently growing dividend yield and strong growth potential. Overall, the company's current status and outlook provide plenty of reasons for investors to be confident in its long-term performance.
The Peacock effect
The pandemic brought out several steep changes in the entertainment industry, and it is clear that its future lies in streaming. Among the large number of streaming services available to consumers, Comcast's Peacock platform stands out with its exceptional feature films and series content from NBCUniversal studios and licensed content from other providers.
What sets Peacock apart is its free ad-supported version, which provides limited access to the service. Meanwhile, premium tiers offer exclusive content and full access, further increasing the platform's appeal. It is no wonder that in such a short amount of time since launching in April 2020, Peacock has gained 15 million paid subscribers and 30 million active users, a testament to its rising popularity among viewers looking for a user-friendly streaming service with great content.
Peacock has added 70% more paid subscribers year to date, making it one of the fastest-growing streaming services. The company earns around $10 from its subscribers through advertising alone. Even better, Peacock was one of the first streaming services to offer personalized ad-supported subscriptions for free. As such, the service has fantastic potential for long-term growth, and Comcast is keen to make the most of it.
The theme park division is on fire
One of the top catalysts for Comcast next year could be its theme park segment. Its park in Orlando closed the popular Shrek 4D ride earlier this year, but management has dropped multiple hints about a possible replacement. Last week, the company put the rumors to bed and announced a new experience based on the Despicable Me/Minions franchise.
Comcast announced that Illumination's Villain-Con Minion Blast will join Universal Studios Florida next summer. Visitors will be in for a fun time with interactive blasters available to combat enemies taken straight out of the Minions movies. The adventure will not end there, though, as the nearby restaurant will become the Minion Café. The entire area in Universal Studios Florida will be rebranded as Minion Land on Illumination Avenue.
Results from the company's theme park segment in its most recent quarter, which ended in September, showed revenue growth of 42%. Moreover, adjusted Ebitda shot up 89% to push through record pre-pandemic levels.
Takeaway
Despite the short-term industry weaknesses, Comcast is positioned remarkably well against the current market headwinds. It stands out from many other companies with its healthy dividend yield, leaving abundant upside potential for further dividend increases. Moreover, it has multiple growth catalysts in play that are likely to take its revenue, not to mention its share price, to new heights.
Some investors may be worried about the company's financial positioning, one of the main reasons its stock has taken a hammering over the past several months. As of the end of the third quarter, it had $97.6 billion in total debt against $5.7 billion in cash and equivalents. Though the discrepancy is a cause for concern, Comcast's business remains solid. And with robust exposure to multiple verticals in its niche, concerns over its future are ill-advised.
As such, I believe investing in a conglomerate like Comcast is an attractive and potentially lucrative option for many investors due to its diversified portfolio. This makes it an ideal choice for those investors who are looking to establish a well-balanced portfolio that has the potential to weather fluctuations within the market. With the share price plummeting, I think it now may be a good time for investors to take advantage of potential returns over the long term.
