Comcast Strong on Innovative Services, Theme Park Business

A string of innovative service launches like “Ethernet@Home” coupled with higher demand for metro Ethernet services are likely to spur growth for Comcast Corporation (CMCSA) in the coming quarters. In addition, investment plans in China to build a theme park in Beijing also bodes well for the company over the long term.

Comcast is aggressively targeting the small and medium-sized business (SMB) segment, which remains the core area of telecom operators. Various industry researchers estimate that the SMB segment is expected to offer a $20–$30 billion market opportunity. Comcast’s Business Hospitality division provides an integrated package of voice trucking, Ethernet-based Internet and HDTV services. Comcast recently launched an innovative service called Ethernet@Home. This will perform as an Ethernet Everywhere service through which a person will be able to enjoy extended and secured Ethernet connectivity anywhere, from office to residence. Ethernet@Home will provide an attractive 10Mbps of data transmission speed to users. The service will undoubtedly solidify Comcast’s footprint in the metro Ethernet market.

On the other hand, NBC Universal is investing around $3.3 billion to build a theme park in Beijing. Comcast has partnered with Chinese investors for the purpose. The company foresees huge opportunity in China as the country has 11 out of the top 20 amusement parks in Asia. Notably, nearly 166 million people thronged these parks in 2013. According to AECOM – a global architecture and engineering firm – 59 additional theme parks are in the pipeline for China. Interestingly, AECOM forecasts that China will overtake the U.S. in the theme park business by the year 2020.

On the flip side, a major concern for Comcast is its spiraling programming expenses. Quarterly operating costs and expenses totaled $11,087 million in third-quarter 2014, up 2.5% year over year. Management also expects programming expenses to rise 9–10% in 2014, mainly attributable to higher retransmission and long-term renewal fees.

Moreover, penetration of digital video customers is almost reaching saturation in the country. In the third quarter of 2014, Comcast lost 81,000 video subscribers. The company ended the quarter with 22.376 million video customers, down 0.7% year over year.

Comcast currently has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks worth considering in this sector include Liberty Global plc (LBTYA), Time Warner Inc. (TWX) and Vonage Holdings Corporation (VG). All these stocks hold a Zacks Rank #2 (Buy).