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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 of the channels and on-demand and pay-per-view programming.
Additionally, the company also operates the varied content business of NBCUniversal which owns cable channels such as USA, CNBC, MSNBC and Bravo, the film studio Universal Studios Inc. and the theme park division Universal Parks and Resorts. 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.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Comcast's value that present opportunities for upside or downside to the current Trefis price estimate for Comcast:
- Comcast Pay-TV Subscriber Fees: We estimate this figure to grow in the coming years and be around $95 by the end of our forecast period as compared to $80 in 2014. However there could be more than 10% upside to our price estimate if Comcast can raise its subscription prices and the average fees stands around $120 by the end of our forecast period. On the other hand, there could be downside of more than 5%, if the company fails to pass the rising costs to its customers and the subscriber fees stays range-bound around $80 levels.
- Comcast Broadband Subscriber Fees: We estimate this figure to grow from $50 levels currently to $61 by the end of our forecast period. However, there could be an upside of more than 10% to our price estimate if this figure were to be north of $80 in the coming years. On the other hand, there could be downside of around 5% to our price estimate, if the company is unable to raise the prices amid an increased competition in the broadband market.
For additional details, select a driver above or select a division from the interactive Trefis split for Comcast at the top of the page.
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 has around 22.4 million pay-TV subscribers and just under 22 million broadband subscribers as of 2014. Going forward we expect that broadband subscribers will continue to grow while pay-TV subscribers will remain more or less stagnant in the long-term.
High average monthly fees per subscriber
There is quite a difference between fee per subscriber for Comcast's pay-TV and broadband subscribers. Comcast is making on average $80 per month from its pay-TV subscribers compared with $50 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. Other 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 to 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.
NBC Broadcasting Is Now On Top In Key Ratings
NBC ranked No.1 broadcasting network with a rating of 2.7 in 18-49 demographic in 2013-14 television season. This is for the first time since 2004 that the network has topped among the Big 4 broadcasting networks. Looking at 2014-15 season, NBC continues to lead in ratings with a 2.8 rating average among adults 18-49 through first fourteen weeks as of Dec 30, 2014.
NBCU Is Expanding In China With A Massive Theme Park Project In Beijing
NBCUniversal, along with Beijing Shouhuan Cultural Tourism Investment Co. (a consortium of four state-owned companies), will build a $3.3 billion Universal theme park in Beijing. The theme park will be spread over 300 acre site and eventually expand to 1000 acres. The project was approved in October 2014 by the Chinese government. Along with the theme park, NBCU will develop an entertainment complex and a Universal themed resort hotel. China is a huge market and it is expected to overtake the U.S. theme parks market by 2020.
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 around 22% 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. The increase witnessed by Comcast in 2012 was due a change in the methodology used by the company to calculate its total subscribers. Ignoring the methodology change, the company lost subscribers that year also.
Comcast has been able to slow down the pace of the decline in market share in 2014. 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 last few years, launched a 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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