Comcast Q2 Commentary: NBCU Recovery Is Overstated

Comcast Q2 Commentary: NBCU Recovery Is
Cheyne Gateley/Variety Intelligence Platform

Investors appeared content overall with Comcast’s second-quarter earnings results. NBCUniversal showed a decent recovery, with overall revenue up to $8 billion in Q2 from just under $6 billion in the prior year. But it was the company’s core businesses that really did the heavy lifting.  

Q2 results also did little to quell M&A speculation. If anything, the speculation strengthened the argument that Comcast could perhaps be a better investment without its media business, much like AT&T’s decision to ditch WarnerMedia and streaming to focus on wireless and 5G. 

With all the intense competition brewing in the streaming wars, analysts jumped at the opportunity to ask Comcast’s management about the possibility of an acquisition to further scale NBCU and its streaming strategy. But as expected, management brushed off such M&A speculation.  

In regard to streaming service Peacock, NBCU CEO Jeff Shell responded that success could be achieved without additional assets. He mentioned that Q2 was proof of that argument. But the numbers tell a different story, suggesting Shell’s division may be wobblier than investors realize.  

Comcast reported confusing Peacock user engagement figures again. CEO Brian Roberts announced on the earnings conference call that the streaming service had 54 million sign-ups as of this week, with more than 20 million monthly active accounts. He also stated that Peacock is the “fastest-growing streaming service.” 

As we’ve noted for quite some time now, it is important to remember that “sign-ups” do NOT equal subscribers. Comcast has not reported how many users are paying for the service and how much money the company is making from users. 

But even by that management-provided measurement, Peacock is still not really doing that great. One thing to consider when analyzing that 54 million figure is the company purposefully announced it was the most recent number as of this week, which means the number is inflated with the expected surge in subscriber additions that came in during the current third quarter to watch the Summer Games. That number could also very well experience heavy churn once the Olympics conclude. 

Then there’s the Monthly Active Accounts (MAA) number of 20 million as of this week. That would imply an increase of only 6 million since last quarter, when the company reported 14 million MAAs. It’s been well over one year since Peacock hit the market, and it still hasn’t even surpassed Comcast Xfinity-operated AVOD service Xumo, which had 24 million monthly active users as of October 2020.  

The numbers contradict the bullish narrative from management, and that should worry investors more than it did Thursday morning, when the stock rose nearly 3% shortly after market open.  

According to new study fielded for VIP+ by GetWizer Consumer Insights among almost 1,500 Americans, while usage of the free version of Peacock is somewhat high, the subscription version Peacock Premium is getting little love. 

Only 8% of those respondents age 15-29 and 12% of those 30-44 watched at least 30 minutes of Peacock Premium in the last week. That compares with 9% of 45-to-59s and 4% of those older than 60.  

While, NBCU's other segments are making a comeback, it’s important to keep in mind that year-over-year comparisons are not a perfect indicator of the current health of the businesses. The U.S. and most of the world shut down in the second quarter of last year, and the macroeconomic backdrop was especially tough. A fairer comparison would be to 2019.  

And with that in mind, consider NBCU’s theme parks biz, which returned to profitability for the first time since Q1 2020 and revenue topped $1 billion. That compares with just $136 million in the year-ago period and $1.46 billion in Q2 2019. Roberts said Universal Studios Orlando is seeing strong domestic demand in both spending and attendance. And the Hollywood park is growing in attendance week after week.  

For all intents and purposes, NBCU is on the way back up, but all of that has been priced into the stock already, which has jumped about 17% so far this year. What really matters and moves the stock is success in Comcast’s core broadband and wireless businesses. In Q2, Comcast added 354,000 high-speed Internet customers, which handily beat Wall Street’s estimates for just 270,000. 

Much like AT&T’s WarnerMedia divestiture, another major benefit to a NBCUniversal spinoff would be further debt reduction for Comcast. While Comcast’s debt of roughly $90 billion is not nearly as large as AT&T’s $168 billion, paying down its debt would line Comcast’s pocket with more cash to strengthen its profit-driving businesses. 

While Roberts is known to enjoy being in the content business, the future is just so much brighter for Comcast’s non-NBCU businesses. And if AT&T’s recent decision with WarnerMedia is any indication, sometimes it’s just better to focus on what’s working in order to be as competitive as possible rather than try to offer too much and risk being mediocre in a streaming business where mediocre just doesn’t cut it.