It seems like everywhere you turn there is talk about cord cutting and cable losing subscribers.  Well, guess what?  For now at least, the narrative is false, especially at Comcast.  Comcast lost just 4,000 video subs in the seasonally weak second quarter against expectations for a loss of 31,000.  This was the best second quarter subscriber performance in 10 years.  In the last 12 months, Comcast has GAINED 90,000 video subscribers.  What the press and many industry commentators are missing is that the cable industry, led by Comcast, is gaining market share in video from satellite and telco competitors.  Furthermore, recently, it appears the two major OTT competitors, Netflix and Sling TV, are seeing much slower subscriber growth.  Finally, the overall rate of decline for video subscribers is not accelerating over the past few quarters.  This leaves cable in much better shape than generally perceived, something evident in Comcast shares trading at all-time highs, up 20% this year.  Long-term risks exist but for now, Comcast, leading with its best in class X1 set top box software, is growing revenue and cash flow from video.  The company is also investing heavily in customer service and reports that all key customer service metrics regarding incoming calls are improving.

With video growing slowly, Comcast is able to grow the overall cable business at mid to upper single digit rates.  Broadband subscribers grew by over 200,000 in the second quarter, ahead of expectations and the highest growth rate in 8 years.  Commercial revenues from sales to small and mid-size businesses grew 17% in the second quarter and now represent more than 10% of cable segment sales.  At that size and growth rate, the supposedly endangered cable industry starts with 1.7% positive growth before the residential business is even considered.

Comcast’s other large business is NBC Universal.  Results there were mixed in the quarter.  The NBC broadcast network performed well as did theme parks.  Cable networks were mixed and filmed entertainment took a big step lower against impossible comparisons from last year’s release of Jurassic World and Furious 7.  Theme parks are undoubtedly a growth business and NBC is enjoying a turnaround.

There are long-term challenges to TV networks so when valuing Comcast, we place a conservative valuation on NBC Universal and back into the implied valuation of the cable business.  Presently, that suggests, cable is being valued at about 7X EBITDA.  This strikes us as inexpensive for mid to uppers single digit growth in a 100% domestic business.  Furthermore, Comcast remains very strongly financially with debt to EBITDA at just 2X, well below peers.  This leaves the company well positioned to invest in its business, exactly what it has done to enable its current leadership position.

The one thing we worry most about at Comcast is that someday, maybe with the advent of 5G wireless, the network advantage that is driving much of cable’s resiliency and growth will dissipate.  We already hear noise on this front but do not think ti will have a meaningful impact for another several years.  While the window is open for Comcast to continue its steady growth, we see CMCSA shares as a core holding.

CMCSA is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.  CMCSA is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.