Wall Street Reactions – The Hollywood Reporter

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When NBCUniversal disclosed Thursday that it will double its content spending on streaming service Peacock to more than $3 billion in 2022 — with a goal of hitting $5 billion in the U.S. over the coming years — the message wasn’t altogether unexpected. But the timing and scale of that spending surprised some on Wall Street, as NBCU owner Comcast looks to change the narrative around its fledgling streaming service.

Finance experts have long seen Comcast’s limited willingness to spend money on Peacock — at least relative to streaming giants like Disney+ and Netflix — as a drag on subscriber and signup growth, with management instead focusing on turning profitable more quickly. Optimistically, the updated strategy can be seen as a signal that Peacock’s early performance has encouraged management to double down on the competitive streaming space, including a bigger push in the subscription space. Or, in a more mixed review, that it needs to do far more if it wants to try to narrow the gap in terms of subscriptions, given that its 9 million paying subscribers pales in comparison not only to Netflix’s 222 million global subs and Disney+’s 118 million, but also ViacomCBS offerings (42 million) and Lionsgate’s Starz (18 million).

An unspecified amount of the increased investment will, according to Comcast chairman and CEO Brian Roberts and NBCU CEO Jeff Shell, come from the reallocation of linear programming spending, but the rest will be an incremental capital injection. The goal is to grow paid subscribers, which amounted to just 9 million out of a total of 24.5 million monthly active accounts (MAAs) as of the end of 2021, more aggressively in addition to gaining advertising-supported users.

“While the timing of when Peacock breaks even may be pushed out … we believe pursuing a dual revenue stream is the right strategy,” Shell concluded, adding that 2023 could now be the year of peak spending. The company had previously forecast that Peacock would break even by 2024.

Wall Street analysts have started sharing their take on what all this means. “Comcast is now leaning more fully into Peacock, which acts as a drag to our [financial] estimates, though is perhaps the best way forward,” Wells Fargo analyst Steven Cahall wrote in a Friday report.

He also analyzed some of the math and metrics involved. “Comcast ended the fourth quarter with 24.5 million Peacock MAAs, or about 1 million better than our forecast,” Cahall wrote. “About 9 million are reportedly premium subs with average revenue per user approaching $10 per month, including advertising, though we estimated blended 2021 Peacock average revenue per user of about $4 per month.”

With the company now expecting a Peacock loss of approximately $2.5 billion in 2022, after a $1.7 billion loss in 2021, and investments peaking in 2023, Cahall forecast a $3.1 billion loss in 2023.

After Comcast reported its fourth-quarter results, but before it unveiled the new Peacock priorities, he had mentioned in a first reaction that he values Peacock at a “blended multiple of about 300 times enterprise value/monthly active accounts, which is a discount to Paramount+ and Discovery+ due to less content, but in the same ballpark (and well above Tubi and Pluto).”

Meanwhile, Cowen’s Gregory Williams lowered his 2022 earnings before interest, taxes, depreciation and amortization (EBITDA) estimate for NBCU from $7.8 billion to $6.5 billion, “largely as a result of significantly higher expected losses at Peacock,” noting in a report that “management indicated that they will be following up on Peacock’s early momentum with increased investment.”

But the Cowen analyst expressed some doubts about the timing of the decision, concluding: “Given the apparent slowdown in streaming industry growth over the past few quarters, we are not sure that we would be picking now as the time to invest more aggressively in Peacock.”

Bernstein analyst Peter Supino echoed that sentiment. “Amidst signs of deteriorating marginal returns across the streaming video ecosystem, NBCU is stepping up its risk profile in streaming,” he wrote in his Friday report.

That is likely to mean a broader downgrade of financial estimates across Wall Street. “We expect consensus forecasts for NBCU 2022 EBITDA to fall by up to $1 billion in the days ahead,” he said.

Supino put the new Peacock strategy into the context of the broader streaming space. With a backdrop of a “historic swell of investment, industry leaders Netflix, Disney and smaller HBO Max are seeing deteriorating marginal returns on programming investments. In that context, Peacock is dialing up its risk appetite,” the Bernstein analyst explained.

Addressing the medium-term Peacock content investment target of $5 billion domestically, Supino argued it was unveiled as the streamer “chases higher-value ‘paid advertising VOD’ subscribers. For perspective, $5 billion is about a fifth of Netflix’s 2021 content budget and perhaps three times Peacock’s 2022 revenue. In reaching 24.5 million MAAs, Peacock can claim success in that it has achieved 75 percent of its 2024 plan. However, that plan didn’t entail much risk nor vision by the standards of the streaming giants.”

In the same vein, MoffettNathanson analyst Craig Moffett in a note argued that management’s spending update was in line with the need to invest heavily in streaming. “The guidance on Peacock spending only confirms what we suspected all along, that building a streaming service will require a lot of cash,” he explained.

He also addressed how the adjusted Peacock plans relate to an increase in Comcast’s stock buyback authorization to $10 billion, which management had touted on its earnings conference call. “While the $10 billion share repurchase authorization is a positive sign, their guidance to a higher Peacock content spend offsets any such positive signal,” Moffett concluded. “To be sure, not all of it will be incremental as they will reallocate some content expense from their linear business, but the lack of answer to how much is incremental leaves investors with more questions.”



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