Comcast-NBCUniversal Cable Split Draws Mixed Reaction From Wall Street; Stock Flat In Early Trading

Comcast‘s decision to spin off NBCUniversal cable networks into a new publicly traded entity has drawn applause in some parts of the business world, but skeptics are also making their voices heard.

Shares in Comcast, which are slightly in the red for the year to date, are essentially flat in early trading Wednesday after starting off at $42.53. Details of the planned spin first emerged Tuesday night, and the company made it official early today.

When the company said it was exploring the scenario three weeks ago, on the day it also released third-quarter earnings, the reaction was generally positive. MoffettNathanson analyst Craig Moffett at the time wrote in a note to clients that the spin was “a very welcome development. Investors have yearned for exactly this, or at least something close to it, for years.”

Leading up to the opening bell Wednesday, though, some Wall Streeters and industry observers flagged concerns about the transaction.

Brian Wieser, a former analyst and ad agency executive who now runs consulting and advisory firm Madison & Wall, said the move appears to be “dis-synergistic.” In an assessment circulated to clients and subscribers to his newsletter, he wrote that advertising revenue could take a hit, at least in the near term, and that could in turn lead to distribution issues.

“Every aspect of the businesses Comcast wants to sell benefit from scale,” Wieser wrote. “In the present era, advertising budgets are allocated to the biggest sellers before they are allocated to smaller sellers because otherwise advertisers end up with more unintended audience duplication than they might otherwise want.In the future, scale will matter even more as marketers will increasingly prioritize the broadest reaching digital platforms over traditional sellers of advertising.”

Laurent Yoon, a media analyst with Bernstein, doesn’t see the maneuver increasing the value of the entire Comcast-NBCU empire. The simple reason: cord-cutting. “Legacy Media is in perpetual decline,” he wrote in a note to clients. “With traditional MVPD subscribers declining by high-single-digits per year, the valuation of the two entities is unlikely to provide a meaningful upside.”

Stipulating that there isn’t enough financial information at this point “to do proper math,” Yoon estimated the valuation of SpinCo at about $10 billion, a small fraction of Comcast’s current level of about $250 billion. Most of the larger company’s profit comes from the broadband business, not traditional linear TV.

Yoon does see the new stand-alone entity potentially becoming “a vehicle to further consolidate assets in
similar situations that may not be appealing to public market investors but interesting enough to private market investors at an appropriate valuation.” Warner Bros. Discovery and Paramount Global recently took a combined $15 billion in write-downs on the value of their cable networks, so there would appear to be potential sellers looking to engage with SpinCo.

“The move would’ve been value accretive a few years ago when both cable and media multiples were significantly higher, but better late than never,” Yoon added.