Comcast's NBCU split makes Wall Street's math easier

Comcast's NBCU split makes Wall Street's math easier

Comcast's split has been a long time coming. But the streaming era made it impossible to put the move off much longer.

Why it matters: Comcast's two core businesses — connectivity and entertainment — have become less synergistic, making it hard for investors to value the company as a whole.

Flashback: When Comcast acquired 51% of NBCUniversal in 2011, bundling cable channels with broadband access made sense. Now that consumers access content via dozens of different apps and platforms, it doesn't.

  • "Where we previously believed that scale and the diversification benefits warranted operating these businesses as one company, we've now simply changed our mind about that," Comcast co-CEO and future NBCU CEO Mike Cavanagh told investors Monday.
  • "We've now concluded that future success for each of our businesses will depend on focus, speed, and strategic flexibility that this separation will unlock."

    • State of play: Comcast's stock rallied on news as investors celebrated the strategic rationale behind the split.

  • Comcast can invest more in network improvements as its lucrative connectivity business faces growing competition from fixed wireless rivals like T-Mobile and Verizon and fiber giants like AT&T.
  • It can explore more opportunities for its cable business to compete with rivals, such as Charter which merged with Cox earlier this year.
  • Bringing back former Comcast CFO Michael Angelakis, a longtime confidant of Comcast chair and co-CEO Brian Roberts, to lead Comcast's connectivity arm will help prepare the unit for a strategic business transformation.

    • Between the lines: While executives say they aren't planning any major mergers or acquisitions right now, splitting the company could allow Comcast to pursue opportunities without the regulatory pressure that comes with being affiliated with a broadcast media business.

  • It will also be separated from the volatility of owning a media business, which depends on cyclical advertising, live events and expensive media rights investments.

    • At the same time, NBCU can pursue deals and partnerships independently, without considering how they impact Comcast.

  • The company, which will be led by Comcast's current co-CEO Cavanagh, could consider more strategic bundle opportunities with other telecom companies, for example.
  • It will be "well-positioned to pursue the significant opportunities that lie ahead, to partner across the media and entertainment ecosystem, and will be poised to grow," Roberts said.

    • Data: Axios research; Chart: Christine Wang/Axios

    The big picture: The Warner Bros. Discovery bidding war showed how eager bigger companies like Netflix are to scale their content libraries, which could provide lucrative merger opportunities for NBCU.

  • Spinning out NBCU's cable networks into their own publicly traded company, Versant, made NBCU a more attractive target for firms like Netflix that have no interest in cable assets.
  • NBCU's theme park business could give it even more leverage for a possible combination, as more Wall Street and consumer spending momentum moves to live experiences.

    • The bottom line: For NBCU, which celebrates its 100th birthday this year, the deal marks an important step in preserving its legacy.

  • As a standalone entity, NBCU has a better shot at brokering deals to scale its streaming arm, Peacock, which is still not profitable and lags rivals like Netflix and Disney+ on viewership.
  • Executives can tell a cleaner growth story to Wall Street while also making a stronger case for investing in certain assets, like sports rights.