Tuesday, July 31, 2018 2:54:41 PM
Reservations about the deal are not unique. No matter what it wants to say about itself, Comcast is a legacy business in a rapidly changing entertainment landscape. Not only that, it’s a debt-laden legacy business. At last count, the media giant had nearly $62 billion of debt on its books. That compares unfavorably to just over $5.2 billion in cash and cash equivalents.
Buying Sky is only going to make this cash-to-debt ratio worse than it already is. Plus, rival Disney (NYSE:DIS) may appreciate Comcast conceding in the race for Twenty-First Century Fox’s (NASDAQ:FOXA) entertainment assets. However, business is war. It’s not giving up Sky without a fight.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
The reason Comcast wants Sky is the exact same one that Disney uses to justify the inevitably rich price tag: international exposure. Sky levers an enviable riches of entertainment and sports channels in the lucrative European TV market. Similar to both suiters, Sky has a production business that is currently focused on original dramas.
Additionally, Sky offers an economical streaming package, as well as a premium streaming service. Naturally, this interests both Comcast and Disney, which must address the cord-cutting phenomenon.
5 High-Growth Stocks Headed for a Brick Wall
While buying Sky addresses many “wants” for Comcast, CMCSA stock could suffer from the burden. Shares have lost more than 12% year-to-date. They could lose much more if a deal goes through.
It’s noteworthy that CMCSA stock is up over 12% since Jun. 1. It’d be a shame if management ignored this precious momentum.
CMCSA Stock Needs a Realistic, Manageable Solution
I can speak unemotionally about CMCSA stock because I’m not vested in it. But if I were, I’d imagine I would approach Comcast’s all-in strategy for Sky with severe anxiety. Yes, it would provide extensive international coverage for the media firm, but the deal is like CMCSA buying a European version of itself.
Most critics focus on the acquisition cost, which is a very valid point. But looking closer at the details, I’m not sure how CMCSA stock benefits in the longer term. Simon Murray, principal analyst at London-based Digital TV Research, believes Comcast and Sky offer an easier partnership than a Disney-Sky duo due to shared core business structures (i.e., pay-TV model).
But that’s also the reason why it’s not a favorable partnership from an investment perspective. Streaming companies like Netflix (NASDAQ:NFLX) have increasingly pressured this business model. Eventually, streaming services will overtake the rest of the world. Sky’s declining revenue growth rate relative to historical performances is a huge red flag in this broader context.
Consider too that the post-second quarter earnings boost for CMCSA stock resulted from unexpectedly bigger high-speed internet customer growth. But even this positive surprise is likely a temporary reprieve.
Telecom and satellite-TV giants like Verizon (NYSE:VZ), T-Mobile (NASDAQ:TMUS) and Dish (NASDAQ:DISH) will debut 5G wireless internet services to compete head-to-head with Comcast.
Industry proponents for 5G estimate a 50% U.S. home-market penetration rate by the end of 2020. If successful, that’s going to crush Comcast’s broadband offering. Even worse, advancing technologies allow relative minnows to offer 5G services for a pittance of what typical broadband providers charge.
Comcast needs something else besides its European counterpart to provide substantive, long-term solutions. Beyond that, Comcast can’t afford Sky. The problem, though, is that management thinks it can.
Comcast Has Other Options
At this point, it’s practically useless to talk about alternatives. Comcast is hell-bent on buying Sky. The company lost a high-profile bidding war with Disney over Fox. Apparently, the chief execs at Comcast and Disney have a personal rivalry. All signs point to another protracted battle.
I do want to point out, though, that CMCSA stock is, at least on paper, incredibly undervalued. Shares are trading at seven-times trailing earnings and less than 14-times forward earnings. As research firm MoffettNathanson recently argued, management should consider buying back its shares.
Recent DIS News
- U.S. Stocks Close Little Changed But Dow Extends Winning Streak • IH Market News • 05/07/2024 08:44:00 PM
- Futures Pointing To Roughly Flat Open On Wall Street • IH Market News • 05/07/2024 01:09:12 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 05/07/2024 01:01:19 PM
- U.S. Index Futures Mixed in Pre-Market Tuesday, Oil Dip • IH Market News • 05/07/2024 11:47:40 AM
- Disney Slashes Streaming Losses, UBS shoots up 9% as profit triples expectations, and More in Earnings • IH Market News • 05/07/2024 11:46:44 AM
- Tesla’s April Sales Down 18% in China, Amazon’s Multi-Billion Dollar Cloud Expansion in Singapore, and More News • IH Market News • 05/07/2024 11:44:00 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 05/07/2024 10:33:09 AM
- The Walt Disney Company Reports Second Quarter and Six Months Earnings for Fiscal 2024 • Business Wire • 05/07/2024 10:30:00 AM
- Philips Stocks Soar 47% Following US Deal, Tesla Bolsters Presence in China, and More News • IH Market News • 04/29/2024 11:11:24 AM
- Apple Loses Market Share in China, GM Surges in Pre-Market Following Upward Revisions for 2024 Projections, and More News • IH Market News • 04/23/2024 11:25:34 AM
- Apple to Invest $250 Million in Singapore Expansion, Oracle Commits $8 Billion to Japan Infrastructure, and More News • IH Market News • 04/18/2024 11:11:52 AM
- The Walt Disney Company Executives to Discuss Fiscal Second Quarter 2024 Financial Results via Webcast • Business Wire • 04/09/2024 05:15:00 PM
- Apple Terminates 614 Employees, Disney Unveils June Crackdown on Password Sharing, and More Updates • IH Market News • 04/05/2024 11:38:57 AM
- Exxon Mobil Forecasts Earnings Decline, Twilio Seeks Board Tenure Changes, and More News • IH Market News • 04/04/2024 11:30:20 AM
- Trian Comments on Preliminary Results of Disney Annual Meeting • GlobeNewswire Inc. • 04/03/2024 05:25:04 PM
- Shareholders Vote to Elect Disney’s Full Slate of 12 Directors • Business Wire • 04/03/2024 05:24:00 PM
- Cal-Maine Surges on Strong Quarterly Performance, Taiwan Earthquake Disrupts Tech Supply Chain, and More • IH Market News • 04/03/2024 11:12:20 AM
- Institutional Investors Express Support For Trian’s Candidates at Disney • GlobeNewswire Inc. • 04/01/2024 11:00:00 AM
- Walgreens Slashes Annual Profit Forecast; MillerKnoll Nosedives 17% on Bleak 4Q Outlook, and Latest News • IH Market News • 03/28/2024 01:48:04 PM
- Disney Urges Shareholders to Vote the WHITE Proxy Card “FOR” ONLY Disney’s 12 Director Nominees • Business Wire • 03/28/2024 11:45:00 AM
- The Walt Disney Company to Webcast Its Annual Meeting of Shareholders • Business Wire • 03/27/2024 05:00:00 PM
- Egan-Jones Recommends Disney Shareholders Vote “For” Nelson Peltz and Jay Rasulo • GlobeNewswire Inc. • 03/27/2024 12:00:00 PM
- GameStop Shares Tumble 20% in Pre-Market Trading Amid Revenue Decline, Direct Digital Plummets 42%, and More News • IH Market News • 03/27/2024 10:54:47 AM
- Trian Reaffirms Its Call for Change at Disney and the Commitment of Its Director Candidates to Work Collaboratively with Members of the Disney Board • GlobeNewswire Inc. • 03/25/2024 12:15:28 PM
- Blackwells Capital: Nelson Peltz is Not the Change Disney’s Board Needs • GlobeNewswire Inc. • 03/25/2024 11:30:00 AM
FEATURED Cannabix Technologies Launches New Compact Breath Logix Workplace Series and Prepares for Delivery to South Africa • May 7, 2024 8:51 AM
Moon Equity Holdings, Corp. Announces Acquisition of Wikolo, Inc. • MONI • May 7, 2024 9:48 AM
NanoViricides Reports that the Phase I NV-387 Clinical Trial is Completed Successfully and Data Lock is Expected Soon • NNVC • May 2, 2024 10:07 AM
ILUS Files Form 10-K and Provides Shareholder Update • ILUS • May 2, 2024 8:52 AM
Avant Technologies Names New CEO Following Acquisition of Healthcare Technology and Data Integration Firm • AVAI • May 2, 2024 8:00 AM
Bantec Engaged in a Letter of Intent to Acquire a Small New Jersey Based Manufacturing Company • BANT • May 1, 2024 10:00 AM