Does Comcast’s Skype Video Service Offer Make Sense?

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Comcast

Recently, Comcast (NASDAQ:CMCSA) introduced HD video conferencing service in partnership with Skype for its subscribers. The service will be available for an additional fee of about $10 per month per subscriber, allowing subscribers to text as well as video chat with others on their big screen TVs.

What is Comcast up to? Is the company diversifying its business lines meaningfully or just doing an opportunistic deal? Last year it acquired 51% stake in NBCUniversal and after initial scrutiny the deal went through. Now Comcast not only controls content distribution but also content creation and licensing to a large extent.

See our complete analysis for Comcast

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Some have said that there is too much power in hands of the company. However, given the presence of big competitors and regulatory bodies, Comcast will not be able to misuse this power unchecked.

Ultimately, it is going to be about business diversification. Comcast has pay-TV, broadband, digital phone, cable and broadcast programming, theme parks, filmed entertainment and now, the Skype video conferencing service.

This service will not only be incremental to Comcast’s profits, but also act as another arm of diversification, however small it may be. Last year, Comcast grew its gross profits by almost 10% (not taking into account NBCUniversal acquisition). The implication being that Comcast is on the right track and Skype service will be incremental to its profit growth which is already healthy. Recently it also launched its streaming service under the name of Xfinity Streampix. Xfinity seems to be becoming a one-stop shopping brand for customers for their entertainment and utility (broadband and phone) needs.

Comcast is getting bigger and more diversified everyday. This puts the company in a strong position from business risk standpoint.

Our price estimate for Comcast stands at $32.55, implying a premium of about 10% to the market price.

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