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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.
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 is leading to attractive introductory offers as an incentive for analog subscribers to upgrade to digital cable. Comcast benefits by migrating customers to digital services quickly, 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 Pricing (Basic Limited)
This refers to the average monthly subscription fee paid by Comcast's basic limited cable subscribers.
Basic limited subscribers have access to very few channels and are on analog platform. This is also a low margin business, as analog subscribers don’t usually subscribe to related services like broadband Internet and voice (as these are on digital platform). Since these customers are not very profitable for the company, they do not figure very highly in the company's priority list. Comcast has been trying very hard to upgrade these customers to the digital platform.
Further, this is a segment where Comcast has been losing subscribers to competition.
Comcast has been increasing the prices for all its services (digital and analog) at periodic intervals, citing rising costs and improved services.
We expect the trend to continue. However, the pricing power is likely to come down as a result of intense competition.
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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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