Motley Fool Hidden Gems Investing - Comcast's Streaming Milestone (and 1 Hidden Winner)

Episode Date: July 5, 2022

Peacock isn't as big as Netflix or Disney+, but it continues to make progress shareholders should appreciate. (0:21) Jason Moser discusses: - NBCUniversal booking $1 billion in upfront ad revenue for Peacock - Why The Trade Desk could be a hidden winner from Peacock's advertising growth - Andy Jassy "celebrating" his 1st anniversary as CEO of Amazon (13:05) Alison Southwick and Robert Brokamp talk with Morgan Housel about the Great Recession, what led to the financial crisis of 2008, and implications for investors today. Stocks mentioned: CMCSA, NFLX, CHTR, TTD, AMZN, AIG Host: Chris Hill Guests: Jason Moser, Alison Southwick, Robert Brokamp, Morgan Housel Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Going on vacation? We're here for it. With kids? Who turn the backseat into a courtroom drama over whose tablet is louder, whose charger is faster, and why watching the same cartoon for the hundredth time is a human right? Yep, we totally have vehicles to handle that. Because whether it's a road trip or a business trip,

where your flight's delayed, your phone's at 2% and your dinner is... whatever's open? Yep, here for that too. Enterprise. We're here for it. Chris Hill. Amazon CEO celebrates his paper anniversary, and Comcast celebrates a milestone for its streaming service. Motley Fool Money starts now. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst Jason Moser. Thanks for being here. Jason Moser. Hey, thanks for having me.

We're going to get to Andy Jassy in a minute, but let's start with some news from the world of streaming video. NBCUniversal has booked $1 billion in upfront ad revenue this year for Peacock, its streaming service. That is double the ad revenue that Peacock did in 2021. When you look at 28 million monthly users, 13 million paid subs, I realize these are not eye-popping numbers. Peacock is nowhere near the top of the heap when it comes to streaming services. But I don't know, I feel like in this environment, Jason, if you're a Comcast shareholder, you have to like the growth that you're seeing at Peacock. Jason Moser. I definitely would. We've noted before on the show that Peacock, first and foremost,

is explicitly an ad play for Comcast. They have stated before, they do not view Peacock as a separate distinct streaming business. You look at something like Netflix, for example, where that's the business, it is a streaming business. They don't view Peacock that way. Ultimately, they see it as an extension of their overall TV landscape, and that's how they manage it. The strategy from the very get-go is going to be different. It certainly benefits from the live sports angle, I think. Being a Peacock subscriber ourselves, and we have, I think, the mid-tier, that $499 or $599, whichever one it is, tier that has some commercials on it. But one thing I noticed just over the past month or so, the recent

U.S. Open golf tournament, for example, they made that to where some of that was specifically and only available on Peacock. It guided viewers over to Peacock for a certain window of that broadcast. They're able to do that more and more with these live sporting events. Obviously, the Olympics they've benefited from. I think they're going to have Sunday night football, if I'm not mistaken, this coming year, which will be, I'm sure, a big contributor. You noted, 13 million paid subscribers, 28 million monthly active accounts. It's worth noting this most recent quarter, they added four million paid subs to end that quarter to get to that 13 million paid subs number. Engagement continues to grow. They've seen 25% increase in hours of engagement year

over a year. Ultimately, the revenue that Peacock is bringing in, that revenue grew more than five times this most recent quarter to over $472 million. Again, I agree with what they're doing here, managing it as an extension of their overall TV landscape because that landscape is really so vast. It seems to be a nice dual-purpose little facet to the business. They can distribute content, but it's also a nice little acquisition tool as well. Also, and this is not the headline today for this company, but you dig down a little bit, they were able to raise ad rates in the mid-single-digit range. That's not an enormous demonstration of pricing power. But again, in this environment,

they're able to exercise a little bit of pricing power. As you said, this is primarily an ad play. When that's your business, mid-single-digit growth on top of the nearly 30 million monthly accounts they have, again, you have to like it if you're a shareholder. Yeah, it's nothing to sneeze at. There are definitely some things on the horizon here that I think should encourage those numbers. Recently, Comcast announced a joint venture with Charter Communications. Ultimately, they're going to be combining forces to bring their voice-controlled streaming platform to more customers. You look at Charter with over 32 million customers today, that's going to be an opportunity to get that Peacock product out there

in front of more folks. Another thing they're doing, they're bringing all of the NBC Next Day broadcast stuff back from Hulu over to the Peacock platform. All of that stuff that NBC benefits from, now it's going to be more exclusive. We talk about that all the time. That's really what differentiates all of these platforms, this exclusive content. Then I think you're right. You look at some of the other carry-on effects there, some of the other ripple effects. I think in theory, this should be good news for a company like The Trade Desk when you talk about ad rates. The Trade Desk, which plays in that programmatic ad space, benefiting from the trends in connected TV and ad-supported video on demand,

they are partners. The Trade Desk and Peacock, they have a partnership there. You would think that as those rates continue to go up for something like a Peacock, as they continue to see that engagement grow, that user base grow. That's going to be something that should play out on the positive side for a company like Trade Desk as well. You can see some ripple effects there with companies like Charter and with the Trade Desk benefiting from this growth in Peacock. It looks like that's poised to continue. Andy Jassy is celebrating his one-year anniversary today as the CEO of Amazon. Let's be honest, what he's probably celebrating is the fact that the year is over, because

has been a rough macroeconomic environment. The supply chain problems persist. Russia's invasion of Ukraine, which no one saw coming, and the ripple effects there, and shares of Amazon down 35% since he took over. When you step back and look at the state of Amazon, stands out to you? I think you're probably right. I think Jazzy is probably glad the year is over, ready just to keep moving forward. It was a difficult transition. They say timing is everything. He stepped into a very difficult situation from a timing perspective. Obviously, they built out a lot of capacity over the last couple of years in order to deal with this changing retail landscape as so much of our consumer behavior

was changed for obvious reasons. I don't hold him really so much accountable for that. I don't mean to just gloss over it, but the fact of the matter is, and they even made a note of this in the most recent call, that capacity to decisions are made years in advance. code for, Bezos did it. It wasn't me. It wasn't Jassy. In all honesty, those decisions were made well before Andy Jassy even took over. Now, it doesn't mean he wasn't necessarily a part of that decision-making. Perhaps he was. I would imagine he was in the room at least. But I think that it's just worth noting, it was a very, very difficult stretch of time in 20 and 21. I think that Amazon has dealt with appropriately. I think we're going to start to see, and they

believe this, but we're going to see as Prime Day hits in the third quarter this year, and as we move into this holiday season, they believe they're going to start seeing more of the benefits of that excess capacity. It doesn't mean that they don't have to deal with it. They do still need to deal with it, but it's going to be something that has a dwindling effect on their financial performance as the year continues, assuming, of course, that consumer demand remains somewhat robust and Amazon remains one of the premier channels for us to get all of that stuff that we want. If that rings true, and I think it likely will, I think there's a chance to see this flip-flop a little bit. When you look at Prime Day last year,

they noted it contributed 400 basis points to their growth in the second quarter. Again, this is going to be something we see materialize in the third quarter this year, But if they can witness that same type of growth and start to see the leverage play out a little bit on the other side there in regard to this fixed cost structure for all of that capacity they built up, we could see that financial performance start to improve in the back half of this year and carry on into the holiday season, which would be a great thing for shareholders. I'm sure it would make Mr. Jassy feel a little bit more comfortable knowing the spotlight wasn't necessarily so bright on him. Prime Day, which is, of course, now two days, and it's

happening next week. Prime Day is, look, I don't want to call it a holiday, but it's this made-up event that the company came up with a decade ago. For a long time, I looked at Prime Day as something of a luxury, in the sense that, hey, this is basically something the company came up with to create demand for the Prime service and get some excitement six months before Christmas. And good for them for coming up with this. But it was sort of like a nice-to-have thing as a shareholder. This year, I'm looking at Prime Day as like, this is not a luxury. We need Prime day. Shareholders need Prime Day to be a hit. Am I wrong to have that shift in expectations that they needed to be more of a hit this year? I think in the near-term, yes. They definitely

would much prefer to see it go over like gangbusters. I don't think it really changes the long-term outlook for the business. We're in a difficult time right now as consumers. I think chances are we really are in a recession now as we're speaking. Even if by some chance the numbers don't bear that out, it sure feels that way for a lot of folks. We're seeing consumers digging into savings now in order to make ends meet and obviously utilizing credit cards more and more, which is not a good thing. I think it's reasonable at least to expect this to be a bit of a muted Prime Day event. If that's the case, then so be it. I don't think that's going to be something that's necessarily fatal to Amazon because I don't think they would be the only

ones in that boat. But I don't think it changes the long-term outlook because I think as soon as the consumer recovers and things get back to some sense of normal, they're always going to have that lever they can pull. Then they're also going to have a lot more capacity online than they had before to be able to fulfill that demand and really get back to what has made them so special up to this point. That is the convenience aspect of it. They've just done such a good job in conditioning us to expect those things within 24 hours or two days. We obviously saw that shift a little bit over the last couple of years, but if they can really get back to that convenience angle that they've done so well with, I suspect they'll be okay.

Jason Moser. I just hope it goes well enough that they don't expand it to three days. Chris Hill. When we start getting to that Black Friday-esque sort of, oh, well, it's just all year long. I don't know, Chris, every day is Prime Day in my house. It seems like I come home, there's an Amazon box or a package there waiting for one of the four of us every day. In that regard, yeah. Hopefully, it doesn't lose its luster. Jason Moser, thanks for being here. Thank you. If you've got a question about stocks, leave us a voicemail on the Motley Fool Money hotline. The number is 703-254-1445. That's 703-254-1445. Up next, Alison Southwick and Robert Brokamp

close out their series on past market declines with Morgan Housel. This time, they look at the Great Recession, the underpinnings that led up to the financial crisis of 2008, and its implications for investors today. Well, it's the fourth and final episode in our series on market crashes, and Morgan joins us again. Hi, Morgan! Hi, guys! Haven't seen you in a long time. I know, it's been a while. For many listeners, they remember very dearly the Great Recession because they lived it, but let's revisit it because they said it was great for a reason. The aughts got off to a rough start with 9-11, which was actually the day after I moved to D.C.

D.C. is in a warm town, and there's a reason they call it the city of northern charm and southern efficiency. But in the wake of 9-11, everyone was walking around looking for a hug. And perhaps it was all this coming together that helped fuel Web 2.0, which was a new wave of the internet built around community and social media. We did a lot of sharing back then. Music, blogging, pictures, videos, so many feels. And while as a nation we ramped up watching cat videos, we also ramped up buying houses. And here's where the fun begins. The Great Recession kicked off in December of 2007. I googled it and that's the answer I got, but Morgan may correct me on when it actually began.

So, yes, we're coming up on the 10th anniversary. Morgan, it's your turn to talk. As much as I want to blame Twitter, what led us into the Great Recession? Let's just go with Twitter. I like Twitter! Why not? I think if you start with the 1990s boom, and then the dot-com bust, something happened after that. Jason Zweig of The Wall Street Journal is the one who first brought this up. He said, investors are very good at learning their lesson, but they've learned too precise a lesson. So, after the dot-com bust, people lost all this money trading dot-com stocks.

The lesson that they learned was, the stock market is dangerous, but they didn't learn the lesson of leverage and going into things that they don't understand. Basically, a lot of people who lost a fortune in the dot-com bubble packed up, took what money they had left, and went straight to real estate. It was almost instantaneous between that movement and then what the Fed was doing with interest rates, making leverage really appealing in the early 2000s. The real estate bubble happened basically the day the dot-com bubble ended. Real estate prices start rising.

And even though we had a recession in 2001-2002, real estate prices were rising all during that time. No impact whatsoever on real estate prices. And then between really low interest rates, and this is what Robert Shiller talks a lot, the psychology aspect of bubbles, when you have something like optimism with an asset, That just feeds on itself and it snowballs on itself. And you see your neighbors getting excited and your brother and your sister and your parents making money on real estate, and then optimism just spreads and it grows. But no one was making money yet, right?

They were just being able to afford more and more house than they could. I think a lot of people were making money. It was early 2002, 2003. Flipping them and taking out the home equity and the life. You had a lot of people that purchased homes in the 80s and 90s for a mortgage interest rate of maybe 8% or 9%, which in the 80s and early 90s, that's what a mortgage cost. And now you could refinance your mortgage at 4%. So people were doing that and getting a dramatically lower payment or just pulling a ton of equity out of their house that they could use to buy jet skis and remodel their house and whatnot.

It's always jet skis. I know. Twitter and jet skis get blamed for everything. They should! There's a reason why! What was the tipping point? Everyone's buying these houses, they can't ultimately afford. What caused the Great Recession? I think it's not necessarily the people who own homes, but it was the banks and the investors that owned all of those mortgages. When they started defaulting on their loans, these big banks and hedge funds and sovereign wealth funds that own all these subprime mortgages, that's when credit markets really started seizing up. The first one was a group of hedge funds in the summer of 2007. They were big

credit funds. All of a sudden, one day, out of the blue, they shut their doors. If you're an investor, you can't have your money back because they had no liquidity in their portfolio. They couldn't sell their subprime bonds. There's no market for them. Subprime bonds and mortgage bonds, which was a trillion-dollar industry back then, happened very quickly in 2007, where the market just shut down and you couldn't sell them anymore. That's really when the the panic began. Alright. What happened? What happened in the panic? You had all these banks around the world that were leveraged 20, 30 times. They had 30 times as much assets as they did equity.

There's a huge amount of leverage. If anything even went slightly wrong, they were in a lot of trouble. Because of that, they started really cutting back on the loans that they were making to the rest of the economy, cutting back on business loans, cutting back on personal loans, to credit-worthy borrowers who, in any other time, would have had no problem getting a loan. They were a great person to lend to. But the banks themselves were in so much trouble that they started shutting down those loans as well. During this time, I worked at a private equity firm in Los Angeles in the summer of 2007. We experienced, as well, taking out loans and financing for great, healthy companies. These were not sketchy subprime loan companies.

These were really healthy, prosperous companies that virtually overnight, the credit spigot stopped. Things happened really quick with the credit crisis. I think Ben Bernanke, to his credit, recognized this very quickly in 2007, a year before most people started recognizing it. This is when the Fed, in late 2007, really started slashing interest rates and stepping in. But the stock market during this time didn't really blink. The credit market started shutting down in the summer of 2007. The stock market hit an all-time high in October of 2007.

Even after the credit markets were going through all kinds of mayhem, the stock market kept going up. The stock market is still doing fine, doesn't care, but that ends. At some point, the stock market starts to care. When is that? It starts to decline a little bit, but even as you get into early 2008, it was still doing pretty well, down a little bit, 5% or 10%, but still at a pretty high valuation that would be associated with optimism. People really weren't that aware of what was going on yet. I think that's a good takeaway from the Great Recession. It's easy to sit here in hindsight and say, it's so obvious, anyone could have seen this coming. If you just think

about stock prices, which is a good reflection for the average opinion out there, even a A year after credit markets started tumbling, the stock market really didn't care that much, which I think is something to reflect on, of how hard these things are to spot. Even with a year's worth of data in your face, most people really didn't see it. I feel like I also see this tweet, Twitter, at least once a month, where someone who's a financial journalist says, the stock market is not the economy. But we kind of always think it kind of is. I think the stock market is a reflection of people's mood, of people's optimism and pessimism, and that also drives the economy.

Another aspect of it is that the savings rate during this period didn't increase that much. So, people with incomes that they had, unemployment was still fairly low in late 2007, were still optimistic enough to go out there and spend a ton of money on restaurants and vacations and whatnot. So, late 2007, early 2008, the economy started slowing a little bit. It was still going at a pretty good clip by a lot of metrics. Things were slowing, but still fairly healthy. Summer of 2008 is really when things got really dicey. What happened then? That's when consumers themselves and businesses really started seeing the writing

on the wall. A couple of events, whether it was Fannie and Freddie being seized, Bear Stearns was basically failed and taken over in March of 2008. Fannie and Freddie was in August of 2008. Confluence of events, that's when unemployment really started ticking up. It was almost like a tipping point that's not necessarily based on any one specific news story, but I think it just becomes obvious to most people in the economy, where you look around and you say, well, shoot, this isn't good. And everyone at the same time, down to me, I probably started going to restaurants less often. One year before, I would have spent extra money on this, but now in 2008, I said,

and I should hold back. You multiply that by 300 million Americans. It really happened so quickly. Between that on the consumer side, and then the banking side, of course Lehman Brothers went bankrupt in September, Washington Mutual, Merrill Lynch, AIG, everything's happened in a one-week period. You put those two things together, a financial crisis and then a slowdown and lack of optimism on consumers. Those two things really drive each other as well. But it really just came crashing down in a one-week period in September 2008. So much of the stock market is based on optimism. Does that make it often a trailing indicator of how bad things are going in the economy?

Or does every market crash its own little unique snowflake? I think it's unique. There are tons of periods historically where you can look back and say, the stock market was looking in the rearview mirror, it hadn't really caught up. And then, you can also find a lot of periods where it's obvious that the market was looking ahead at the next six months or the next year, and saw a recovery before other people. So, it's generally phrased as the market is looking six to 12 months ahead. But I think you can also look at periods like late 2007, where I think it was looking 12

months behind and really didn't see what was coming ahead. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.