Disney Or Comcast?

by Trefis Team
-4.97%
Downside
43.41
Market
41.26
Trefis
CMCSA
Comcast
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Comcast stock (NASDAQ: CMCSA) price has increased by 11% in the last three and a half years, when the stock increased from $35 at the end of 2016 to $39 as on 30th June,2020. That’s positive for Comcast’s investors. But wait a minute, close rival Disney stock (NYSE: DIS) price has increased only by 7% during the same period. This is despite the fact that Disney’s net income margins have been higher than Comcast’s in three of the last four years. Does the stock price movement then make sense? We believe it does and our dashboard Disney vs. Comcast: Does The Stock Price Movement Make Sense? has the underlying numbers.

Sure, Disney’s net income margins have remained largely above Comcast’s, but the one key element is the revenue growth. Despite Comcast’s revenue base being significantly higher than Disney’s, Comcast’s revenues have increased from $80.7 billion in 2016 to $108.9 billion in 2019, registering a growth of 35%. This is higher than Disney’s revenues which increased by 25% during the same period, from $55.6 billion in 2016 to $69.6 billion in 2019.

Additionally, despite seeing higher margins, Disney’s margin growth over the years compares unfavorably with Comcast. Disney’s margins decreased to 15.9% in 2019, which is even below its margins of 16.9% and 16.3% in 2016 and 2017, respectively, (margin was unusually high in 2018 due to tax benefits) due to expenses related to the Fox acquisition and higher interest expense. This is against Comcast’s margins which, in fact, increased from 10.7% in 2016 to 12% in 2019.

The P/E multiple for both companies has seen a lot of volatility over recent years, though currently Disney commands a higher P/E of close to 17x as against 14x for Comcast, due to strong growth prospects of Disney+. Disney’s stock has lost 23% of its value since the end of 2019 compared to a 13% loss for Comcast. Thus, the coronavirus crisis has affected Disney much more than Comcast. So what along with revenue and margins is driving this difference in price trend? It’s the revenue mix.

How Do Businesses Of Comcast And Disney Compare?

Let’s have a closer look at the core business aspects. Though both companies are known to be competitors in the cable networks and broadcast category, they have various other revenue sources. Over the years Disney has increased the share of parks & resorts in its total revenue from 31% in 2014 to 38% in 2019. The current lockdown in almost all major cities due to the coronavirus pandemic has led to a virtual shut down of almost all its parks & resorts, thus severely hitting its top line. Additionally, with new film production having halted and advertisers unwilling to spend much, the company’s studio revenue (which formed 16% of 2019 total revenues) is also likely to be affected in 2020.

In contrast, 90% of Comcast’s revenue comes from cable communications & network, broadcast, content and advertising, all of which is much less affected by the current crisis. Parks and studio entertainment revenues, which are much more affected during this pandemic, forms about 10% of Comcast’s revenues. Thus, Disney’s business, with more than half its revenues being contributed by studio and parks, was much more affected due to the lock down compared to Comcast, which is reflected in Disney’s stock losing far greater value in 2020 so far.

However, Disney continues to have a higher P/E multiple than Comcast due to a very successful launch of Disney+ a couple of months ago. Disney’s entry into streaming is providing tough competition to incumbents like Netflix and Amazon. With streaming expected to be around 20% of Disney’s total revenues in 2020 and with demand for streaming increasing during the current crisis, it has been the only saving grace for the company during this pandemic. Comcast’s planned entry into the streaming space with its offering ‘Peacock’ expected to be launched in mid-July, is also a major factor why we have not seen a significant decline in its stock price. Depending on the response Peacock gets post its launch, Comcast’s P/E multiple has the potential to see a marginal uptick. As per Comcast’s valuation, Trefis has a price estimate of $41 per share for CMCSA’s stock. At the same time, Disney’s stock could see a marginal uptick as all its non-Disney+ revenue (expected to be about 80% in 2020) is likely to start picking up toward the end of 2020 as parks & resorts open and studio business gets back to normal as the global lock down is gradually being lifted. Disney’s valuation by Trefis comes to about $125 per share.

While Disney and Comcast both are expected to rise modestly in the near term, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

For further perspective of the streaming world, see how Disney compares with Netflix.

 

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