NBCUniversal's Peacock Unveiling: What Wall Street Is Expecting

Peacock Logo - H - 2019
NBCUniversal

"Comcast should be able to reach between 10 million and 30 million paid subs and 50 million to 90 million monthly active users in the next five years," says one analyst.

With Comcast's NBCUniversal set to unveil details of its upcoming streaming service Peacock on Thursday, Wall Street analysts have been weighing in on what investors should expect. The meeting, set to start at 1 p.m. PT, will feature top executives discussing NBCU's "overarching strategy for the platform," the company said.

Among the speakers are Steve Burke, who, after eight years running NBCUniversal as CEO, is preparing to step down when his contract expires at the end of August, with Jeff Shell set to replace him.

Peacock is NBCU's play amid the streaming wars and will launch in April, thus arriving after the debuts of Apple TV+ and Disney+ in November and before the May launch of HBO Max from AT&T's WarnerMedia.

The company will invest $2 billion over the first two years and break even by year five, Comcast CFO Michael Cavanagh said at a recent investor conference, with much of the early spending dedicated to content and marketing. He added that a different approach compared with competitors would ensure that near-term losses would be lower. For example, Cavanagh said that Peacock would be free for Comcast subscribers, with tiered pricing for non-customers, and include advertising. Management and chatter had previously suggested that the service would include a subscription tier as well as a tier that is free and possibly a cheaper tier supported by advertising.

The inclusion of an advertising video on demand (AVOD) model comes as observers expect AVOD to take off with consumers looking for an alternative to subscription-only services. "AVOD is coming, and it's going to make its mark on the VOD landscape rapidly," said Guy Bisson, director at Ampere Analysis. "Its impact will be felt not just by the entertainment industry, but by advertising, too, as the shift that has already disrupted the subscription television market sweeps across the free-to-air sector."

AVOD services like Peacock are expected to follow "a well-trodden path with an early reliance on older content," said Bisson, "but as their market position grows, we can expect them to begin acquiring newer content and even moving into original production activity as they battle for eyeballs."

Barclays analyst Kannan Venkateshwar previewed NBCU's upcoming Peacock event in a Jan. 7 report and concluded that the product "could be a meaningful ad revenue opportunity." But he argued that management must provide long-term transparency. "Multiyear investment cycles with limited visibility need a narrative to align investors with management goals," he explained.

"This is something that Disney has done a great job of over the course of 2019 and has in turn given the company more degrees of freedom to invest aggressively in its streaming efforts," the analyst said. "Peacock's investor day provides a similar opportunity to Comcast, but the company will need to change its usually conservative playbook for communication."

Conservatively, Venkateshwar predicts that Peacock can grow to $1.7 billion in revenues in the first five years, but at the high end it could swell to as much as $5 billion versus about $7 billion for Disney+ in the same time frame. If achieved, this would be approximately 30 percent of NBCU's total advertising revenues, enough to offset pressure at NBCU due to cord-cutting.

"Comcast should be able to reach between 10 million and 30 million paid subs and 50 million to 90 million monthly active users in the next five years. For context, just Saturday Night Live has about 9.5 million users subscribed to its YouTube channel," said the analyst.

Pivotal Research Group's Jeff Wlodarczak argued in November that Peacock would be "smartly positioned as a free, ad-based alternative," but he warned that "replacing pay TV dollars with ad-based direct-to-consumer dollars looks more like a necessary trade than a great trade or innovative idea."

He concluded: "Peacock is likely to have enough good content and the backing of one of the largest U.S. cable operators to be successful, but we doubt they will ever be in the same ballpark as Disney and Netflix."

Matthew Harrigan at Benchmark forecasts that Peacock will end 2020 with 18 million U.S. subscribers; end 2021 with 23 million; and will have 40 million by the end of 2023, while opining that "the total Peacock cash burn is incidentally not above one quarter's free [cash] flow for Comcast."

Comcast has said Peacock's operating loss for the first two years will be about $2 billion. By comparison, the operating loss for the first two years of Disney+ is expected to be $3.2 billion.

Venkateshwar at Barclays thinks that when NBCU discloses pricing for Peacock, it will be free for Comcast cable TV subscribers, $4.99 for non-subscribers or $9.99 for non-subs who prefer an ad-free experience. It's trickier to predict what Comcast will offer its broadband-only subscribers though.

One of the more bearish assessments of Peacock comes from Peter Supino of Bernstein, who called it "a thoughtful but belated reaction to tectonic shifts in video." He also deemed it a "last mover among the heavies" but added that it makes sense that Comcast waited so long to jump into the streaming wars, given its investment in the traditional TV bundle.

Supino said that Comcast being late to the party was a "clear indication" that it saw the status quo of low growth and high margins as preferable to Peacock, "which we regard as mostly self-cannibalization."

Cowen analyst Gregory Williams in a Jan. 10 report similarly mentioned Peacock, especially the near-term investment in it, as a concern, along with Comcast's European pay TV giant Sky, that is keeping him from recommending Comcast's stock, in which he has a "market perform" rating, to investors, for now. He wrote: "The Peacock and Sky 'show me' keeps us on the sidelines as Comcast should underperform the cable sector."