Cord-cutting looks "freaking ugly," analysts from MoffettNathanson wrote in a note to clients Tuesday.
Comcast, AT&T and Charter reported 1.25 million in aggregate video subscriber losses in the second quarter. MoffettNathanson believes it'll only get worse: the firm predicts that the rate of decline will accelerate to a record 5.5% in 2019.
The media landscape may be changing — especially since multiple mergers are in the pipeline — but billionaire investor Mario Gabelli is still finding plenty of opportunity within the space.
First and foremost, he looks for companies that provide scale and international growth.
"At some point you need scale and you need to go global," the Gabelli Funds Chairman said on Tuesday's "Halftime Report." He believes the MoffettNathanson analysts are "right about the U.S." but notes that "the U.S. is 330 million consumers — we've got 7 billion plus in the world. So, what companies can take their content and distribute it globally and how do you do that?"
As the largest shareholder of voting stock in both CBS and Viacom, Gabelli believes the merger, which he is "still waiting for," has "got to" happen and "should come together for scale." The companies have set August 8, the day they both report second quarter earnings, as a deadline for a deal agreement.
And that's not the only media merger creating opportunity.
Gabelli likes the deal between Disney and Fox, especially in terms of the latter's stock, which he owns. Fox is trading around $37, which Gabelli says is a "bargain", given "$15 billion of cash flow, of EBITDA, and $2 billion of cap-ex."
There's still upside for Disney too, says Gabelli. "It was trading at $110" earlier this year, "and [CEO Bob] Iger got a huge tailwind of the notion of taking on Hulu and creating a new Netflix-type subscription service" — Disney+, which is scheduled to launch in the fall and cost $6.99 a month.
Gabelli predicts the stock can hit $180, which is about 25% higher than where it traded on Wednesday.
"The stock is going to earn $7.50 in three years, put a 15 to 25 multiple [on it]. So 15 times $7.50 is $105; 25 times $7.50, you got $180...And meanwhile it's getting a roar from 'The Lion King," he said.
The live-action remake is Disney's latest blockbuster smash, passing $1 billion at the box office on Tuesday after just 19 days in theaters.
The T-Mobile and Sprint merger, approved by the Department of Justice last week, is another one Gabelli likes. Calling it "brilliant" and "necessary," especially as an investment in 5G technology, he thinks the biggest stock bargains can be found with the majority owners of the two companies.
Gabelli views Deutsche Telekom, which owns 80% of T-Mobile, as a steal because that stake is "worth 9 euros out of their 16 euro [stock] price." Even better is Softbank, which "owns 80% of the 4 billion shares of Sprint" and will "have 320 million shares of [T-Mobile]" when the merger goes through. Gabelli bought Softbank's stock on Tuesday for $53, calling it a "token. It's worth $187 mark-to-market with their Alibaba and if you take [T-Mobile] at $82," the price it was trading at on Tuesday.
Gabelli did warn, however, that investors should keep a global perspective. The T-Mobile and Sprint merger will already face formidable domestic competition in AT&T and Verizon, and when looking around the world there's "always...a fourth player." He cautioned to avoid "tunnel vision" but not "just looking at the U.S."
On the smaller side, Gabelli brought up Roku, an alternative to traditional cable in which he holds a "tiny" stake. His philsophy around the stock is that it gives consumers the optionality that they desire.
"Give to the consumer what they want at the lowest possible cost to the consumer. The consumer is smarter, and they've got devices like Roku that can create opportunities."
Disclosure: Mario Gabelli owns shares of CBS, Comcast, Fox Corporation, Roku, Softbank Group Corporation, T-Mobile, Viacom and Verizon.