This week, Comcast (CMCSA, Financial), a major player in U.S. media and cable television, reported better-than-expected third-quarter results. However, the company continues to face a challenge with the persistent loss of cable TV subscribers, with approximately 365,000 users leaving in the third quarter alone. This trend reflects the ongoing consumer shift towards streaming services.
In response, Comcast hinted during an earnings call that it is exploring options to divest its cable television network businesses. The company acknowledges the deteriorating state of the U.S. cable TV market and is considering various strategies for its network portfolio. Comcast President Mike Cavanagh stated that any potential separation would not include its broadcast network NBC or its streaming service Peacock, which has been bolstered by exclusive coverage of events like the Summer Olympics.
Several Wall Street firms have weighed in on the news. Evercore ISI noted that the proposed separation may be narrower than some investors anticipated but signifies a major strategic shift for Comcast. The company is open to exploring alternatives for its mature assets facing long-term challenges, which could involve partnerships with Warner Bros. Discovery (WBD) or Paramount Global (PARA).
Morgan Stanley estimates that divesting the cable TV business could modestly increase Comcast's growth rate by about 100 basis points, though this might be counterbalanced by equity distribution. Historically an asset acquirer, Comcast is openly discussing a potential exit from a business it has owned for about 15 years, highlighting the potential advantages of diversification for shareholders.
Scotiabank commented on the changing landscape of the cable TV industry, suggesting that management is exploring whether spinning off a new company comprised of cable networks could be beneficial. If structured effectively, the existing company could display higher growth rates without being weighed down by declining network assets.
Benchmark and Macquarie weighed in on the strategic evaluation that could lead to NBC Universal's cable network separation, which includes channels like CNBC and MSNBC. This move aims to mitigate the valuation burden of declining revenues while focusing on the growth of platforms like Peacock.
Despite a modest 2% rise in Comcast's stock price this year, it pales in comparison to the S&P 500's 20% increase, indicating potential investor concern over the company's current trajectory.
