Any notions that Comcast (NASDAQ: CMCSA) would be able to escape the cord-cutting phenomenon have been decidedly put to rest.
After bucking industry trends and gaining 161,000 subscribers in 2016, the cable giant has lost pay-TV customers for each of the last two quarters. Comcast added 42,000 cable customers in Q1, then lost 34,000 in Q2, and another 125,000 in Q3.
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That's still better than many of its rivals, but it seems very likely that as the cable universe shrinks Comcast will be hurt. The company does have ways to offset those losses, but investors should still be concerned about the increasing impact of cord-cutters on the company.
What is Comcast doing?
In the short-term, Comcast has done an excellent job earning more revenue from its remaining cable customers while also increasing its overall subscriber base by adding broadband users.
In Q3 the company's Cable Communications division saw revenue rise by 5.1%. It also added 115,000 customers (240,000 new broadband users minus the 125,000 it lost in cable). On top of that, Comcast increased its total-revenue-per-customer by 2.1%.
CEO Brian Roberts tried to accent the positive in his remarks in the Q3 earnings release.
Why worry about cord-cutting?
Cord-cutting hurts Comcast in multiple ways. It obviously costs the company revenue as it loses subscribers, and the shrinking cable universe presents a danger for NBC as well as Comcast's various cable networks.
Cable network revenue is down 0.3% through three quarters for the company. Broadcast television has dropped by a more troubling 10%. The broadcast number can be explained by 2016 being an Olympic year, but the cable number is worrisome.
Comcast's cable networks include USA, Bravo, MSNBC, CNBC, and E!. They make money in two ways -- advertising and carriage fees paid by other cable companies to air those channels. As the cable universe gets smaller, both of those numbers will shrink as well.
What should investors be watching?
Comcast is a lot more than a cable company, but so far in 2017 cable subscribers delivered $17.39 billion of its overall $62.61 billion in revenue. Broadcast accounted for another $6.5 billion, and cable networks delivered $7.9 billion.
That's roughly half the company's revenue tied to the future of the television industry. That's a market where it's hard to know where the bottom will be. Cord-cutting has accelerated, but some of those leaving traditional cable will subscribe to a streaming service like Hulu, which Comcast is a partial owner of.
Comcast, perhaps more than any other company, has managed cord-cutting well. It has found new sources of revenue. But it's going to need to keep doing that in order to keep its bottom line healthy. That means continuing to develop alternative delivery methods for its cable channels and NBC while also finding ways to license individual programs.
This isn't a crisis for Comcast -- at least, not yet -- but it's a challenging situation that could get worse. Investors should be wary, but also be confident that, so far, the company has handled the changing market well.
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