Netflix, Inc. (NFLX), Comcast Corporation (CMCSA): Will HBO Kill Cable?

Page 2 of 2

Companies that could be pressured the most would be those providers without content rights or big Internet businesses. Here, DirecTV (NASDAQ:DTV) seems particularly vulnerable. As the company lacks networks of its own, and is not a big Internet provider, it could be devastated by people abandoning traditional cable packages.

That said, perhaps there is something here I am not seeing. The company is loved by Berkshire Hathaway’s Ted Weschler and Todd Combs. Perhaps it could merge with rival Dish Network, or use its satellite signals to provide cell phone service.

Should Time Warner Inc (NYSE:TWX) spin HBO off?

Time Warner Inc (NYSE:TWX) is the parent company of HBO. Would it be best for its shareholders to spin the company off?

Netflix is currently worth about $10 billion. Many would argue Netflix’s current market valuation is excessive, but ignoring that, HBO as a separate company should be worth at least as much as Netflix, if not more.

Time Warner currently trades with a price-to-earnings ratio of 18 — about inline with the S&P 500. Netflix trades with a PE ratio of over 600. HBO seems to be a growth company trapped within a bigger cable giant. Spinning it off could allow it to be more accurately valued by the market, and bring big returns to current Time Warner Inc (NYSE:TWX) shareholders.

How should investors position themselves?

If HBO opts to offer itself to non-cable customers, this will only embolden the arguments of those who believe that cable TV is a dying business.

But that doesn’t mean cable stocks are universally a sell. Comcast seems to be well diversified, while Time Warner shareholders could be rewarded if the company decides to spin HBO off. Netflix shareholders, too, must consider a few possibilities. Would an online HBO be an ally, or a powerful competitor?

At any rate, stocks associated with cable and content continue to offer interesting investment opportunities.

The article Will HBO Kill Cable? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2