Motley Fool Money - 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

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One last big number. Save up to 40% your first year. Visit LifeLock.com slash podcast for the threats you can't control. Terms apply. Amazon CEO celebrates his paper anniversary, and Comcast celebrates a milestone for its streaming service. Motley Fool Money starts now. I'm Chris Hale, joining me today, Motley Fool's senior analyst, Jason Moser. Thanks for being here.

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. NBC Universal has booked $1 billion in upfront ad revenue this year for Peacock, its streaming service. service, that is double, double the ad revenue that Peacock did in 2021. And 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 kind of have to like the growth that you're seeing at Peacock? Yeah, I mean, I definitely would. I mean, this is, we've noted before on the show that Peacock is, first and foremost, is explicitly an ad play for Comcast. I mean, they have stated before. I mean, they do not view Peacock as a separate, distinct, streaming business.

So you look at something like Netflix, for example, where that's the business, right? It is a streaming business. They don't view Peacock that way. Ultimately, they see it as an extension of their overall TV landscape. That's how they manage it. So the strategy from the very get-go is going to be different. I mean, 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. I mean, 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. And so 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. And you noted, I mean, they, 13 million paid subscribers, 28 million monthly active accounts. And it's worth noting this most recent quarter, they added 4 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 year. And ultimately, the revenue that Peacock is bringing in, that revenue grew more than five times this most recent quarter to over $472 million. So, all things considered, again, and 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 sort of dual purpose, a little facet to the business, right? I mean, they can distribute content, but it's also a nice little acquisition tool as well. Also, and this, you know, this is not the headline today for this company, but you know, you you dig down a little bit, they were able to raise ad rates in sort of 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. And as you said, this is primarily an ad play, and when that's your business, mid-single-digit growth on top of sort 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. And there are definitely some things on the horizon here that I think should encourage those numbers. I mean, they recently Comcast announced a joint venture with charter communications. Ultimately, they're going to be combining forces to bring their voice control 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. So all of that stuff that NBC benefits from, now it's going to be more exclusive. And we talk about that all the time, right? I mean, that's really what differentiates all of these platforms, is exclusive content. And then I think, you're right. I mean, you look at some of the other carry-on effects there, some of the other sort of ripple effects. I mean, I think in theory, this should be good news for a company like the Trade Desk.

When you talk about ad rates, and 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 our partners, right? The Trade Desk and Peacock, they have a partnership there. And so, 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-based grow, that's going to be something that should play out on the positive side for a company like Trade Desk as well. So you can see some ripple effects there with companies like Charter and with the Trade Desk

benefiting from this growth in Peacock. And 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 it has been a rough macroeconomic environment. The supply chain problems persist. The Russia's invasion of Ukraine, which no one saw coming, and the ripple effects there, and shares of Amazon downed 35 percent since he took over. When you step back and sort of look at the state of Amazon. What stands out to you?

I think that, I mean, I think you're probably right. I think I think Jazzy is probably glad the year is over, ready kind of just to keep moving forward. It's been a difficult, it was a difficult transition, right? They say timing is everything, and he kind of 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 sort of this changing retail landscape. Is this so much of our consumer behavior was changed for obvious reasons? And that, you know, I don't hold him really so much accountable for that. And I don't mean to just gloss over it, but I mean, the fact of the matter is, and they even

made a note of this in the call, the most recent call, the capacity to decisions are made years in advance. That's code for, Bezos did it. It wasn't me, right? It wasn't Jassy. No, but I mean, 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, right? They do still need to deal with it, but it's going to be something that has sort of 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 sort of 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 of 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. And 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, it's this, 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. And for a long time, I looked at Prime Day as something of a luxury in the sense that, like, hey, this is basically something the company came up with to create demand for the Prime Service and get some excitement six months before the, you know, before Christmas. And good for them for coming up with this. 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, that, you know, that. they needed to be more of a hit this year? So I think in the near term, yes. I mean, 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. I think 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. 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. And so I think it's reasonable at least to expect this to be a bit more of a muted prime day event. And 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 yeah, 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. And 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 kind of get back to what has made them so special up to this point. And that is the convenience aspect of it, right? I mean, they've just done such a good job in conditioning us to expect those things within 24 hours or two days. And we obviously saw that shift a little bit over the last couple of the last couple of the last couple

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. I just hope it goes well enough that they don't expand it to three days. Yeah, when we start getting to that Black Friday-esque sort of, oh, well, it's just all a year long. I mean, isn't every day, I don't know, Chris, every day is prime day in my house. I mean, it seems like I come home, there's an Amazon box or a package. They're waiting for one of the four of us every day. So in that regard, yeah. Hopefully it doesn't lose its luster.

Jason Moser, thanks for being there. Thank you. Hey, 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. Haven't seen you 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 is actually the day after I moved to D.C. is into 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. While as a nation, we ramped up watching cat videos, we also ramped up buying houses.

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. So, Morgan, it's your turn to talk. As much as I want to blame Twitter, what led us into the Great Recession? Let's go with Twitter. I'm like Twitter. Why not?

I think if you start with the 1990s boom and then the dot-com bust, there's something happened after that. Jason's Wag or the Wall Street Journal is 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.com stocks. And the lesson that they learned was the stock market is dangerous, but they didn't learn the lesson that of leverage and going into things that they don't understand.

So 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. And 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, I mean, basically the day the dot-com bubble ended. Real estate prices start rising. And even though we had a recession, 2001, 2002, really. 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 Schiller talks a lot, the psychology aspect of bubbles. When you have some 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. So everyone knows what happened now. 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 up the home equity in life.

It was really when things started getting big. You had a lot of people that purchased homes in the 80s and 90s for a mortgage interest rate of maybe 8 or 9 percent, which in the 80s and early 90s, that's what a mortgage cost. And now you could refinance your mortgage at 4 percent. 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-skirts. and remodel their house and whatnot. It's always jet skis. People love, I know.

Twitter and jet skis get blamed for everything. They should. There's a reason why. So what was the tipping point? So 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 hands, and they had, they had, and hedge funds and sovereign wealth funds that own all these subprime mortgages. That's when credit

markets really started seizing up. So the first one was a group of hedge funds in the summer of 2007. They were big credit funds, and 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. So if you, subprime bonds and mortgage bonds, which is a trillion-dollar industry back then, happened very quickly in 2007, where the market just shut down, and you couldn't sell them anymore. And that's really when the panic began. All right. What happened? What happened in the panic?

I mean, so 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. So if anything even went slightly wrong, they were in a lot of trouble. And so 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 2007, and we experienced as well of taking out loans and financing for great, healthy company, These were not sketchy subprime loan companies. These were really healthy, prosperous companies that virtually overnight, the credit spigot just stopped. So things happened really quick with the credit. I think Ben Bernanke, too, his credit, recognized this very quickly in 2007, a year before most people started recognizing it. So this is when the Fed, in the late 2007, really started slashing interest rates and stepping in. But the stock market during this time didn't really have, didn't really blink. So the credit market started shutting down in the summer of 2007. The

stock market hit an all-time high in October of 2007. So even after the credit markets were going through all kinds of mayhem, the stock market kept going up. All right. So the stock market is still just 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, five or ten percent. But still, at some, at the stock market, 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, 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 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 high. hard these things are to spot, even with a year's worth of data in your face. Most people really didn't see it. Yeah. I feel like I also see this tweet, Twitter, at least once a month, where someone who's

like a financial journalist says, the stock market is not the economy. But we kind of always think it kind of is. I think that's wrong. It 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. So I think people during this time, another, you know, a Another aspect of it is that the savings rate during this period didn't increase that much. So people with the 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, but it was still going at a pretty good clip. By a lot of metrics, things were slowing, but still fairly healthy. And the summer of 2008 is really when things got really dicey. What happened then? I think that's when consumers themselves and businesses really started seeing the writing on the wall. And 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, I think, August of 2008. Just these confluence of events, that's when unemployment really started ticking up. It's almost just 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, this isn't good. And everyone at the same time, down to me, you know, I probably started going to restaurants less often. And maybe I, you know, in one year before, I would have spent extra money on this, but now

in 2007-8, I said, I should hold back. And you multiply that by 300 million Americans. And 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 Mutuals. Merrill Lynch, AIG, everything has happened in a one-week period. And you put those two things together, a financial crisis, and then a slowdown and lack of optimism on consumers.

And 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 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 is 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, you know, the stock market was looking in the rearview mirror, which you know, 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 recovery before other people. So, I think 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 ourselves stocks based solely on what you hear.

I'm Chris Hill. Thanks for listening. We'll see you tomorrow.