Insights

Why Comcast Stock Dropped 15.1% in April

What happened
Shares of Comcast (NASDAQ: CMCSA) dropped 15.1% in April, according to S&P Global Market Intelligence. The media and cable conglomerate reported its first-quarter earnings, which came in above expectations, but investors still decided to sell off the stock toward the end of the month. Compared to the S&P 500, which was down 8.8% in April, Comcast trailed the index by 6.3% in the period.
So what
Comcast is an entertainment and telecommunications conglomerate with a market capitalization of $179 billion. It owns a broadband internet/cable business, NBC Universal, Sky Entertainment, and many other assets.
Image source: Getty Images.

On April 28, the company reported earnings for the first three months of 2022. Revenue of $31 billion, up 14% year over year, beat analyst expectations of $30.5 billion going into the report. Adjusted earnings per share (EPS) hit $0.86, up 13% year over year. This number beat analyst expectations as well.
So why did Comcast’s stock fall even though its financials beat Wall Street expectations? I think there are two reasons. First, high-speed internet customer additions came in at 262 thousand for the quarter, or 180 thousand excluding free subscribers. The nominal number beat Wall Street’s expectations for 229 thousand additions, but the adjusted number was much less. This may have investors nervous about the potential growth of internet broadband customers in the coming quarters, a key part of Comcast’s business. For reference, three of the large broadband internet companies, Comcast, Charter Communications, and Altice USA, are down 20%+ this year. 

CHTR data by YCharts
Second, Comcast’s streaming video ambitions aren’t growing quickly. Peacock subscribers (its core streaming asset) only added 4 million paying subscribers in the quarter, bringing its total to an underwhelming 13 million. This is much lower than the leading streaming companies like Netflix, Disney, and HBO. 
Toward the end of the month, Comcast announced a partnership with Charter to make its Xfinity Flex streaming hardware available to subscribers of both companies. I don’t think this had much of an effect on the stock price, but it shows the dynamic environment internet/media companies are operating in at the moment. Comcast is right in the middle of all this chaos. 
Now what
With the stock drop, Comcast trades at a trailing price-to-operating income (P/OI) of 8.4. If you add back its $100 billion in debt and subtract out its cash, the stock has an enterprise value (EV) of $273 billion, giving it an enterprise value-to-operating income (EV/OI) of 12.7. Both these numbers are cheap compared to the market average and could provide a buying opportunity if you believe in the long-term durability of Comcast’s internet and media businesses. 
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy. –

What happened

Shares of Comcast (NASDAQ: CMCSA) dropped 15.1% in April, according to S&P Global Market Intelligence. The media and cable conglomerate reported its first-quarter earnings, which came in above expectations, but investors still decided to sell off the stock toward the end of the month. Compared to the S&P 500, which was down 8.8% in April, Comcast trailed the index by 6.3% in the period.

So what

Comcast is an entertainment and telecommunications conglomerate with a market capitalization of $179 billion. It owns a broadband internet/cable business, NBC Universal, Sky Entertainment, and many other assets.

Image source: Getty Images.

On April 28, the company reported earnings for the first three months of 2022. Revenue of $31 billion, up 14% year over year, beat analyst expectations of $30.5 billion going into the report. Adjusted earnings per share (EPS) hit $0.86, up 13% year over year. This number beat analyst expectations as well.

So why did Comcast’s stock fall even though its financials beat Wall Street expectations? I think there are two reasons. First, high-speed internet customer additions came in at 262 thousand for the quarter, or 180 thousand excluding free subscribers. The nominal number beat Wall Street’s expectations for 229 thousand additions, but the adjusted number was much less. This may have investors nervous about the potential growth of internet broadband customers in the coming quarters, a key part of Comcast’s business. For reference, three of the large broadband internet companies, Comcast, Charter Communications, and Altice USA, are down 20%+ this year. 

CHTR data by YCharts

Second, Comcast’s streaming video ambitions aren’t growing quickly. Peacock subscribers (its core streaming asset) only added 4 million paying subscribers in the quarter, bringing its total to an underwhelming 13 million. This is much lower than the leading streaming companies like Netflix, Disney, and HBO

Toward the end of the month, Comcast announced a partnership with Charter to make its Xfinity Flex streaming hardware available to subscribers of both companies. I don’t think this had much of an effect on the stock price, but it shows the dynamic environment internet/media companies are operating in at the moment. Comcast is right in the middle of all this chaos. 

Now what

With the stock drop, Comcast trades at a trailing price-to-operating income (P/OI) of 8.4. If you add back its $100 billion in debt and subtract out its cash, the stock has an enterprise value (EV) of $273 billion, giving it an enterprise value-to-operating income (EV/OI) of 12.7. Both these numbers are cheap compared to the market average and could provide a buying opportunity if you believe in the long-term durability of Comcast’s internet and media businesses. 

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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