Following a massive sell-off that saw its market cap decrease by around $16 billion, Comcast has been upgraded back to “buy” status by MoffettNathanson analyst Craig Moffett.
“In our Comcast downgrade on June 20th, we posited that the market will have to come to grips with the idea that video subscriber estimates, even at best-in-class Comcast, will have to come down, and that there will necessarily be a rotation in the ownership of Comcast shares as Comcast’s growth increasingly depends on price rather than volume,” Moffett wrote in a note to investors this morning. “Let us be the first to concede that we don’t know how long it will take for that rotation to occur. It is highly unlikely to have fully run its course in less than a week.”
Last week, Comcast residential products chief Matthew Strauss triggered an abrupt sell-off of Comcast stock when he told a media investment conference that Comcast could lose as many as 150,000 pay-TV subscribers in the third quarter.
The losses shouldn’t be surprising, even for a “best-in-class” video supplier like Comcast, Moffett said.
“In a quarter that same Google launch 24 new markets for YouTube TV, increasing its local market reach from 22 million to over 57 million households (48% of the U.S.), and where AT&T started selling DirecTV Now subscriptions for only $10 a month to any unlimited wireless subscriber and went back to giving away a free Apple TV in return for a three-month subscription for a limited time, it shouldn’t be a surprise that traditional pay-TV providers are seeing incremental weakness,” Moffett explained.
“Yes, Comcast's X1 and best-in-class VOD library make it logical to assume that Comcast will do better than the industry as a whole. But when you are as large as Comcast, it is not reasonable to assume that you can outrun the industry you are in,” he added.
Moffett predicts Comcast shares will soon rebound, with a new class of investor coming in that doesn’t necessarily view cable performance through the lens of pay-TV.
“We’ve spent 18 years repeating a simple mantra: Cable operators are not media companies, they are infrastructure providers,” Moffett said. “Their infrastructure is still advantaged. Comcast will be just fine.”