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Jim Cramer's Action Alerts PLUS

Rating the Olympic Performances of Comcast, Facebook

By Jim Cramer and Jack Mohr | 08/25/16 - 03:30 PM EDT
Stocks in Focus: CMCSA, FB

Now that the Summer Olympics have come and gone, we have the opportunity to take a look back and evaluate the experience from a business perspective and, more specifically, make sense of the ever-evolving technological landscape that has shifted the way we consume content.

With the Summer Games coming along only once every four years (and the staging of the Olympics every two years if you alternate between the summer and winter games), they offer us the unique ability to recognize clear trends that have developed in the downtime. Of course, we can monitor the developments in the media/technology/advertising spaces day to day and month to month, but by looking back on a two- or four-year period, we really can get a feel for what has changed and what trends to keep an eye on as we look ahead to the next competition.

So, what are we really yammering on about here? This is all about recognizing the new age of content consumption that we have vaulted into over the last couple years. That means sharing, social, and real-time access. No surprise here -- Facebook (FB:Nasdaq) was a clear winner throughout this summer’s games as the company showcased its broad reach and effectiveness in keeping users, especially millennials, engaged with fresh and compelling content. The Olympics further cemented Facebook’s dominance as the go-to platform for social engagement.

Before we delve deeper into the statistics for Facebook throughout the games, we want to address the elephant in the room -- that would be the negative analyst commentary that has emerged on NBC’s ratings during the Olympics and the supposed disappointing overhang that the games brought on parent company Comcast (CMCSA:Nasdaq).

First off, yes, the ratings in terms of pure, traditional television viewing did dip compared to the London Summer Olympics. Lack of millennial viewership -- via traditional channels, that is -- was considered the main culprit, but there’s more to that story.

According to NBCU, nearly 50 million viewers streamed 3.4 billion minutes across the web and on mobile and connected devices, with more than half of streamers under the age of 35. To put this in perspective, almost 200 million viewers watched the games throughout the two weeks or so of coverage. That means roughly a quarter of the viewership (give or take considering that some users may be double-counted in both groups) moved over to more nimble, on-demand viewing options. Contributing to this movement, NBC offered live streaming of all the competitions, a welcome addition given than many of the most attention-grabbing activities took place during the day but were aired at night (e.g., gymnastics).

Building upon the inroads NBC made in developing innovative ways to garner viewership, the network generated more than 600 million video views of NBC Olympics Facebook video and created 160 Facebook Live videos. (More on this below, but that clearly demonstrates the growing power of Facebook’s platform). NBC Sports’ YouTube subscribers also increased sevenfold during the games. As we mentioned last week, digital ads throughout the games are powerful for NBCU considering that the company doesn't have to share the revenue with other operators. In addition, the long-term benefit of retaining even a portion of these additional subscribers/viewers way beyond the Olympics on growing platforms has been overlooked.

The last point we wanted to highlight regarding Comcast’s experience throughout the Olympics is the way the company integrated its X1 platform, proving yet again why the service brings promise to the company’s cable division. We think CMCSA management really hit the nail on the head when talking about X1 at a recent conference: "When we [Comcast] initially rolled out X1, a lot of times people thought about it as a set-top box. It's not that. It's not that at all. In fact, it's a cloud-based platform that delivers experiences through a set-top box, but also delivers experiences to any Internet- connected device, whether it's in your home or out of your home." That’s powerful.

Connectivity and access both are only growing more important with each passing day, and X1 has built the bridge that has allowed Comcast to remain ahead of the curve. And the results are evident: Management noted that Nielsen data showed that Olympics ratings within Comcast homes was 19% higher than it was outside of Comcast homes, driven by X1’s interactive experience.

Importantly, the investment in the X1 infrastructure during the Olympics isn’t simply for a one-time benefit; the company will use the capabilities developed and insights learned throughout the Olympics in order to continually improve all viewing experiences. One of many examples is the X1 sports app, which tracked medal counts throughout the games. The same features used during the games are applicable to college football, the NFL, NHL and so on and even can be adapted for use during other major television events (think: the Oscars). Simply put, Comcast, via X1, is creating unique ways of featuring content to captivate consumers with a wide array of interests.

Taking a step back, in the near term we expect advertising sales for Comcast to be buoyed by the election as we approach the final three months of the campaign. Between the presidential race and Republicans desperate to keep the Senate, we expect both local and national advertising to see a solid lift, all of which will be a boon for Comcast.

Now let’s move on to Facebook. The Olympics were a different, generally more positive story for the social media giant. As is becoming the new norm, people felt compelled to share their reactions to the various Olympic events with acquaintances, friends and family. Where did they go to do so? Facebook.

Facebook achieved a new record of views and clicks for its own coverage of the Rio Olympics 2016. The platform saw more than 1.5 billion interactions -- including "likes." posts, comments and shares -- related to the Olympics throughout the games. In a two-and- a half-week period, 277 million people globally were using Facebook to discuss the games. That means those users, on average, interacted with Olympics-related stories at least five times throughout that time period. Let’s not forget Instagram, which reported that 131 million people had 916 million interactions related to the Olympics games. These incredible numbers exemplify the explosive growth that Facebook has experienced even since the last Olympics in 2012, growing to more than 1.7 billion users on its core platform, along with 500 million for Instagram and more than 1 billion for Messenger.

Perhaps more important is the evolution of the user experience on the platform over the years that has encouraged more people to join and interact on Facebook. Changes have included live video, expanded reactions, a more nimble newsfeed and the build-out of standalone Messenger. But during the Olympics, video shined brightest. Facebook , not any television network , owned the exclusive rights to swimmer Michael Phelps’ retirement announcement, which he filmed live for his Facebook followers on his page. Phelps’ video has generated more than 3.97 million views.

Although this is all very qualitative, we wanted to provide subscribers with a view of how we make sense of an important event such as the Olympics, and how we learn with an investment perspective in mind. We think the games truly gave a peek into the captivating capabilities of Facebook, and to a broader extent, the ongoing evolution of the media landscape, with Facebook emerging as a dominant force. We can be assured that Facebook’s ability to engage users does not go unnoticed by its true customers, the advertisers.

Regards,

Jim Cramer, Portfolio Manager & Jack Mohr, Director of Research
Action Alerts PLUS

DISCLOSURE: At the time of publication, Action Alerts PLUS was long CMCSA and FB.

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Markets

Chart of I:DJI
DOW 18,448.41 -33.07 -0.18%
S&P 500 2,172.47 -2.97 -0.14%
NASDAQ 5,212.2040 -5.4910 -0.11%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
AA 0.60% Metals & Mining
AAPL 3.49% Consumer Durables
AGN 4.67% Drugs
BMY 0.58% Drugs
C 4.16% Banking
CSCO 4.83% Computer Hardware
DOW 3.15% Chemicals
FB 4.90% Internet
GE 2.90% Industrial
GOOGL 4.70% Internet
NXPI 3.46% Electronics
PNRA 4.32% Leisure
SBUX 3.40% Leisure
SLB 3.22% Energy
TJX 2.49% Retail
V 3.42% Financial Services
WBA 3.65% Retail
WFC 4.40% Banking
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AEP 1.31% Utilities
CMCSA 1.56% Media
COST 2.61% Retail
OXY 2.07% Energy
PEP 3.84% Food & Beverage
PYPL 1.78% Financial Services
TMO 2.10% Health Services
Holdings 3

Stocks we would sell on strength

Symbol % Portfolio
Weighting
Industry
PG 3.48% Consumer Non- Durables