“Comcast’s 1Q20 2Q20 earnings report and conference call exposed sharp differences of how the COVID crisis is impacting the company’s three business segments.  Already positive trends in the core cable business are getting a boost.  NBC Universal and Sky, however, are in the direct path of the virus with little visibility for the pace or timing of a recovery.”

If that looks and sounds familiar it is because this was the lead paragraph in last quarter’s review of Comcast.  We did strike 1Q20 and replaced it with 2Q20 as there really is little change in Comcast’s fundamentals from three months ago.  That said, we feel a bit better abut Comcast stock as the strength in the company’s cable business, built on broadband connectivity is better than we hoped and is looking more sustainable.  Cable margins have kicked up a level as broadband continues to rise while low margin cable TV subscribers cut the cord.  Cable TV still matters but Comcast will not defend margin-detracting subscribers.  Also helping margins is improvement in wireless where Comcast continues to grow subscribers and is gaining economies of scale.  The wireless business is closing in on breakeven after losses had been running over $100 million per quarter.

Unfortunately, NBC Universal and Sky continue to be severely impact by COVID while also facing secular challenges.  Both segments were not as bad as expected in 2Q but results were still poor.  NBCU saw revenues -25% and EBITDA -30%.  Sky saw revenue -13% and flat EBITDA.  Sky EBITDA benefited from lack of sports rights payments and that benefit will reverse throughout 2H20.  In contrast, Cable saw revenues rise slightly and EBITDA grow 6%.  There is some hope for NBCU and Sky in 2H20 as sports return to the air (and hopefully stay there!) and theme parks have reopened everywhere but California.  However, cost savings from sports rights, lack of film and TV production, and elimination of Film marketing will reverse.

Comcast shares have moved back to their level from February as investors value the cash flow and consistency of the cable business. A reasonably successful launch of Peacock, Comcast’s ad-supported streaming service has also helped sentiment.  Thanks to its broadband business, Comcast has a shot at a successful transition to streaming with the ability to help Peacock get subs and the need for all households to have broadband if they want to stream.  Finally, the strong free cash flow is repairing the balance sheet that was stressed after the acquisition of Sky.  This moves share buybacks closer.  We think the shares can grind higher and still reach the $50 level.  Not huge upside but enough given the defensive characteristics of the broadband connectivity business.

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.