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Is Comcast Stock a Buy?

Comcast (NASDAQ: CMCSA) has been one of the power brokers in the internet and cable business for decades now, and it fortified that position by buying NBC Universal -- along with its content and theme park businesses -- more than a decade ago. But the last few years have brought threats from streaming and wireless internet that could undermine the business long-term.

Is Comcast the kind of business you should buy and hold today? Or should investors be looking for opportunities elsewhere?

Image source: Getty Images.

Comcast's core is changing

A decade ago cable video was the core of Comcast's business, but that business is deteriorating quickly. In 2020 the company lost 1.4 million video subscribers, following a loss of 733,000 in 2019. People are cutting the cord in favor of streaming services, and that's not going to change. Even voice customers are declining, falling by 275,000 subscribers in 2020 to 11.0 million.

A rapid jump in high-speed internet customers has been making up for those losses. 2020 saw an increase of 2.0 million internet customers, after a gain of 1.4 million in 2019. In total, the company ended 2020 with 30.6 million internet customers, 19.8 million video customers, and 11.0 million voice customers.

On the surface, it looks like high-speed internet could make up for the losses in video and voice, and the addition of Peacock to the streaming lineup could keep Comcast in the streaming wars. But there are other threats to keep in mind.

The threats facing Comcast

Comcast faces obvious competition in video and voice service. And both subscriptions are likely dying businesses, although it'll probably take decades for them to completely fall apart.

But I think investors need to take a closer look at high-speed internet. For years, Comcast has faced little to no competition in much of the country for high-speed internet service. Fiber isn't available in most of the country, DSL connections are slower, and cable monopolies in some municipalities keeps competition out. So as the need for internet service rose, so did the company's revenue. But that may not last.

4G wireless services are now faster than cable in some locations -- like my house, where Comcast is our cable provider and Verizon (NYSE: VZ) is our wireless provider. But it's been hard to make wireless service a home or business's primary internet service until very recently. As 5G rolls out, however, Verizon, AT&T (NYSE: T), and T-Mobile (NASDAQ: TMUS) are all offering wireless home internet services that aim to replace cable internet. And those products will improve in performance and availability over the next few years.

SpaceX is also now offering Starlink, which provides satellite internet with high speeds around the world. For rural customers and customers where Comcast is the only high-speed internet option, Starlink could be a viable competitor.

Competition in high-speed internet has been relatively weak for most of Comcast's history in the business. But that could be changing, and that's something investors should worry about.

Comcast isn't cheap anymore

Comcast stock could have been considered a decent value early in 2020, with a price-to-earnings ratio in the mid-teens. But today the P/E ratio is 23 -- and a big chunk of its business is deteriorating.

CMCSA Revenue (TTM) data by YCharts

If Comcast's business were growing or there weren't competitive threats coming after the one growing portion of the business, I would feel more comfortable buying the stock. But the future doesn't look bright for cable TV, and I don't think the growth we've seen in cable internet will last. That's why I don't think Comcast's stock is a buy today.

There are also better communications and media stocks available to investors -- like Verizon, which is rolling out a 5G network and home internet service, and comes with a 4.5% dividend yield.

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Travis Hoium owns shares of AT&T and Verizon Communications. The Motley Fool recommends Comcast, T-Mobile US, and Verizon Communications. The Motley Fool has a disclosure policy.


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