3 Inevitable Blow Ups - Investment Ideas
07 June 2012 - 10:00AM
Zacks
I recently added HBO to my cable television subscription. I enjoy
the series and the extra movie options I have on the several
channels on cable line up. What I enjoy more is HBO GO. I am not
alone.
HBO GO is a service that comes free with the subscription and
allows me to stream content to a phone, tablet, computer or
streaming device like Roku or Apple TV. Since I recently got a new
laptop with an HDMI slot, I connect the laptop right to the TV.
Perfect picture and tons of content. Much more content than is
available from On Demand and the speed of access to that content is
many, many multiples faster.
I now watch HBO GO more than I do the regular channels of HBO
because I have access to 263 movies and ALL of the series, not just
part of one season.
The Future
This made me think of the future and how there will not be a
need for cable companies down the road... and that is just fine
with me. For years I have been paying a king's ransom for 38
cooking shows that I never watch or channels that have a
questionable existence. Soon I will be able to stream right to my
large screen TV and get to choose what I want.
Services that push content, like how Pandora pushes music will
pop up on the broadcasting side of the internet to address the idea
of discovery. But make no mistake about it, demand and choice will
drive the majority of future viewership. I will watch the Jersey
Shore whenever and where ever I want to catch up with Ronnie and
Sammie and the rest of the crew.
Even if the Facebook IPO and subsequent meltdown slows some of
the new ideas into the market, these push or discovery streaming
companies are coming. They will also likely come to investors are
much cheaper rates thanks to the IPO debacle.
While this is still years away, we can still get ready for it by
protecting ourselves from the losses that are inevitably going to
come. Where are the losses? Well the cable companies and the
satellite providers will be most directly impacted. We saw it in
newspapers before and now the cable companies are next.
In the Crosshairs
Charter Communications (CHTR) passes about 12 million
homes are delivers internet to 3.5 million homes. Its stock is at
close to a 52 week high and is a Zacks #3 Rank (Hold), but I think
it’s going lower. Investors are clearly looking past the fact that
the company has reported 7 straight earnings losses, all of which
have been well below consensus. While internet delivery is still
going to be a backbone service Charter splits its internet revenue
with a separate backbone provider. So the growth engine for this
company will not generate the full effect for shareholders. Gains
that investors may have made in this name will be the target of
streaming companies.
Analysts have slowly caught on to what is happening at CHTR. In
August of 2011, earnings estimates for 2012 stood at $2.41 and have
since moved to a loss of $1.80 a share. Estimates for 2013 have
also seen similar decapitations, moving from $4.69 to the current
level of $0.48, a decrease of nearly 90%.
Dish Network (DISH) is another such example or a cable TV
provider that doesn't possess the full internet pipeline that is
going to truly hook the consumer. Yes Dish serves nearly 14 million
customers with an excellent variety of programming choices, but
soon most of those choices will be available on the internet.
Analysts have already noticed the trend, and have moved
estimates lower for 2012 and 2013. In August of 2011, estimates for
2012 stood at $2.91 and have since moved lower by $0.10. Over the
same time period, 2013 estimates have contracted from $3.07 to
$2.87.
DIRECTV (DTV) is bigger than DISH, with about 20 million
customers in the US, and another 12 million in Mexico and South
America. Maybe the demand for internet isn't as large in South
American and DTV will have a little more "lasting" power, but urban
centers will thrive on the internet broadband or fiber to the
home.
DTV bucks the trend of lower future estimates. To keep the
consistency with the other stocks, DTV has seen estimates increase
from August 2011 to the present for both 2012 and 2013. 2012 has
seen an increase of $0.12 to $4.34 in expected earnings. 2013
estimates have increased $0.05 to $5.31.
I see Comcast (CMCSA), with its more than 22 million
cable subscriber and 18 million internet customers as having one of
the more defensible positions in the industry. Yes the ratio of
internet to cable is compelling but there is the idea of the
ownership of NBC and Telemundo. Those content providers will
benefit from the coming switch, even if they are owned by cable
companies.
Conclusion
Make no mistake. Streaming from the internet is the wave of the
future and its coming. It won't happen in 2012 or 2013, but we will
feel the first rumblings in 2014. After that, its downhill for
these cable providers. That idea alone should make you want to
rethink your position if you own CHTR, DISH or DTV.
Brian Bolan is an Equity Strategist for Zacks.com. He is also
the Editor in charge of the Zacks Home Run Investor service and
Zacks Follow The Money Trader
Follow Brian Bolan on twitter at @BBolan1
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CHARTER COMM-A (CHTR): Free Stock Analysis Report
DISH NETWORK CP (DISH): Free Stock Analysis Report
DIRECTV (DTV): Free Stock Analysis Report
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