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Investment Overview for Comcast (NASDAQ:CMCSA)
Comcast is a U.S. cable operator, providing consumers and businesses with pay-TV, broadband and digital voice (VoIP) services. The company makes money through monthly subscription fees for its services, advertising carried on some its channels and on-demand and pay-per-view programming.
Additionally, the company also owns a huge content business of NBCUniversal which owns cable channels such USA, CNBC, MSNBC and Bravo. Comcast acquired additional 49% stake in NBCUniversal from GE in early 2013 and now owns 100% of the company.
The second largest U.S. cable operator, Time Warner Cable, agreed to merge with Comcast in 2014. The company is currently awaiting regulatory approvals for the proposed merger. If the merger goes through, it will boost Comcast's pay-TV market share to 30% in the U.S. and also generate $1.5 billion in operating efficiencies.
We believe cable TV (pay-TV) is the most valuable segment, followed by broadband. This is primarily due to following reasons:
High number of subscribers
Comcast had close to 22 million pay-TV subscribers and over 19 million broadband subscribers at the end of 2013. Going forward we expect that broadband subscribers will continue to grow while pay-TV subscribers will remain more or less stagnant in long-term.
High fee per subscriber for
There is quite a difference between fee per subscriber for Comcast's pay-TV and broadband subscribers. Comcast is making on average $81 per month from its pay-TV subscribers compared with $48 per month for broadband subscribers.
Migration to digital platform
Comcast's strategy of migrating to an all digital platform was an important step given the technological advancement. Earlier, cable companies have lost many subscribers due to delay in this transition. Comcast benefited by migrating customers to digital services, since it frees up significant delivery bandwidth by eliminating the analog service. Moreover digital services offer higher profits for Comcast, compared with analog TV services.
Increasing Competition with Telecoms, such as AT&T and Verizon
AT&T's U-Verse and Verizon's FiOS are fiber optic TV services that have gained traction in some geographic areas. We expect competition in this space to result in declining subscription prices for both telecom and cable operators.
Online video services such as Netflix emerging as a potential threat
Comcast's VoD services are increasingly facing competition from online streaming companies such as Netflix. Netflix has been able to create a huge fan base with subscribers growing at a rapid pace. The company has been consistently adding to its movie and TV show catalog. Although there is no evidence currently that services such as Netflix are encouraging people to cut their cable cords, over time this may emerge as a more serious threat.
Trefis Forecast Rationale for Comcast Pay TV Market Share
This represents Comcast's share of the U.S. pay-TV market. The pay-TV market refers to cable TV and satellite TV.
Pay-TV viewers have to subscribe to a connection from one of the operators and pay for the service on a monthly basis. The contracts are usually time-bound.
Comcast is the biggest U.S. cable service provider, with nearly 21% share of the U.S. pay-TV market. Till 2007 the company gained substantial market share, both as a result of acquisitions as well as organic growth. However it has been losing market share since then as a result of competition from satellite pay-TV providers and telecom operators. However, in the fourth quarter of 2013, Comcast surprised the street with modest gains in video subscribers. While we believe the subscriber loss will continue in the coming years, it will be at a slower rate due to Comcast's advanced products such as X1 and Xfinity.
Second largest U.S. cable company, Time Warner Cable, has agreed to merge with Comcast and the merger is pending approval from regulatory authorities. If the merger goes through, it will significantly increase the subscriber base and take Comcast's market share to close to 30%.
Trefis considered the following factors for its forecast:
- Intense competition in the pay-TV market
- Comcast faces intense competition from other pay-TV companies such as Time Warner Cable, DirecTV, Dish Network, AT&T, Verizon etc. As a result it has consistently lost pay-TV subscribers over the past few years.
- The U.S. cable market is more or less saturated, with limited scope for expanding subscriber base.
- Acquisition is the easiest way to gain market share but FCC is unlikely to view any significant acquisition favorably
- In an intensely competitive operating environment, the easiest way to gain market share is by acquisition.
- Comcast has been an aggressive player, acquiring AT&T's broadband business in 2002, putting in a failed bid for Disney in 2004, and acquiring NBCUniversal in 2011.
- Nevertheless it is going to difficult to make a major successful bid in pay-TV service business.
Back to Company Overview
- Comcast's efforts & other developments
- Comcast has improved its customer service in recent times, introduced streaming service named Xfinity Streampix, and promoted its Xfinity bundles. Additionally, the company has been making efforts to improve on-demand content.
- Furthermore, the telcos have reduced their pace of expansion of fiber optic services and that should help Comcast in future. In fact, Comcast is co-marketing its products with Verizon while the latter is focusing more on wireless service.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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