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Investment Overview for Comcast (NASDAQ:CMCSA)
WHAT HAS CHANGED?
- Growth in high-speed internet subscriber base
Even though Comcast continues to lose pay-TV subscribers, the company’s high-speed internet segment has experienced rapid growth in its subscriber base and revenues. Comcast added 1.367 million high speed internet subscribers, but also lost 36,000 pay-TV subscribers during the year 2015. This result underscores the changing complexion of Comcast’s business. Even though the company made its name in the past selling cable services, it is the high speed internet segment that is leading the growth charge in recent years. The increasing need for speed and connectivity is driving the demand for high-speed internet in the United States. The higher penetration of smartphones, and use of multiple devices, is also aiding overall growth. We expect Comcast’s high-speed internet business to continue to bring in more customers, while its pay-TV business will likely continue losing customers in the foreseeable future.
- NBCUniversal has become an important growth driver for Comcast
NBCUniversal constitutes approximately 36% of Comcast’s total value, and includes the cable and broadcasting networks, theme parks, and movie businesses. NBCUniversal reported revenues of approximately $28.5 billion for the full year 2015, a 12% jump as compared to the prior year. The main catalyst for NBCU’s impressive showing was the filmed entertainment segment, which grew 46% during the year. Comcast’s Universal movie studio had a banner year in 2015, becoming the first studio to deliver three blockbuster hits in a single year which crossed the $1 billion mark at the global box office - Jurassic World, Furious 7,
. The studio has also benefited from smaller, but equally impressive hits, such as Fifty Shades of Grey
and Pitch Perfect 2
. NBCUniversal’s broadcasting network NBC has also held its own against its rivals, helped by the success of its programming. The network has ended the last two regular TV seasons at the top spot in the highly coveted 18-49 demo category. Additionally, NBCUniversal’s theme park business is also trending well, and is generating stable cash flow for the company. Consequently, we believe that NBCUniversal will continue to perform exceedingly well for Comcast in the coming quarters.
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 the NBC and Telemundo broadcast networks, cable channels such as USA Network, E!, CNBC, MSNBC, Syfy, and Bravo, the film studio Universal Studios Inc., and the theme park division Universal Parks and Resorts. Comcast acquired an additional 49% stake in NBCUniversal from GE in early 2013 and now owns 100% of the company.
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 $100 by the end of our forecast period as compared to $84 in 2015. 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 $130 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 $80-85 levels.
- Comcast Broadband Subscriber Fees: We estimate this figure to grow from $53 levels currently, to $66 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 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.
High number of subscribers
Comcast has around 22.4 million pay-TV subscribers and 23.8 million broadband subscribers as of March 31, 2016. Going forward, we expect that broadband subscribers will continue to grow while the pay-TV subscriber base will shrink in the long-term.
High average monthly fees per subscriber
There is quite a difference between fees per subscriber for Comcast's pay-TV and broadband subscribers. Comcast is making on average $84 per month from its pay-TV subscribers compared with $53 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 a 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 many 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. There is some evidence currently that services such as Netflix are encouraging people to cut their cable cords, and this phenomenon may emerge as a more serious threat over time.
Universal studio's focus on international franchises
Comcast's Universal movie studio had a banner year in 2015, delivering hits such as Furious 7, Jurassic World, Fifty Shades of Grey, Minions, and Pitch Perfect 2. The most pleasing part of Universal’s success is that the studio has a blueprint to replicate it in the coming years. The studio is building brands with an eye to the future. Universal continues to focus on international markets and is creating movies with popular international franchises such as Fast and Furious, Despicable Me, and Fifty Shades. Universal successfully revived the fan-favorite Jurassic Park franchise with the blockbuster hit Jurassic World and a sequel has been green-lit with a 2018 release date. The studio also has other relatively lower grossing franchise properties such as Pitch Perfect, Jason Bourne, Neighbors, Ted, The Purge, Snow White, and the Huntsman etc.
NBC Broadcasting's improvement in key ratings
NBC finished the 2013-2014 prime-time season as the number one ranked broadcasting network in the coveted 18-49 demographic. The 2013-2014 season marked NBC’s first win in that demographic in 10 years. The network has managed to repeat its feat and finished number one in the same demographic for the 2014-2015 season as well. The network’s success was led by the hit drama The Blacklist and a Christina Aguilera starred reality show, The Voice.
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), is building a $3.3 billion Universal theme park in Beijing. The theme park will be spread over a 300 acre site and eventually expand to 1,000 acres. The project was approved in October 2014 by the Chinese government. Along with the theme park, NBCU is developing 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 Penetration of Digital TV among Comcast Subscribers
This refers to the proportion of Comcast's subscribers who are on digital platform.
These subscribers typically have a set-top box and have access to much better picture quality and sound than they had on their analog sets. These subscribers also have access to added on services like Digital Video Recording (or DVR) and Video on Demand (or VOD), which the analog subscribers don't.
Digital cable penetration (or proportion of Comcast cable subscribers on digital platform) has seen an upward trend, from less than 45% in 2005 to more than 78% in 2009. Digital cable outgrowth has outgrown analog subscribers as a number of customers originally subscribing to analog service have upgraded.
We expect the trend to continue. We believe that digital transition is here to stay; we expect nearly all subscribers to be on the digital platform in the next few years.
Trefis considered the following four factors for its forecast:
Back to Company Overview
- Digital TV offers better picture quality
- Digital platforms have more bandwidth than analog platforms.
- Hence, digital TV subscribers experience much better picture quality.
Digital TV subscribers have access to a lot more
add-on services and features.
- Digital TV subscribers can use Video-on-Demand (or VOD) services
- They can also use a
Digital Video Recorder (or DVR) and thus view time-shifted TV.
- Further, a number of channels now are
High Definition (or HD), offering much clearer picture quality and a much better overall experience.
- Analog subscribers cannot access any of these services, as these can be provided only on a digital platform
- Bundling of services allows digital users to get access to broadband and voice services more easily
- In the past few years, almost all cable operators have started providing Internet and voice (VoIP) services to their digital customers.
- They can do this because these services can be transmitted over the same digital platform.
- It makes business sense for the operators to provide multiple services to customers as it helps them retain customers.
- It also helps them explore
economies of scope
- It also pushes up the average fee per digital subscriber, thus making them more profitable for the operators.
- For customers, bundling is attractive, as they are saved from the hassle of dealing with multiple service providers
- It also works out to be cheaper for them, as operators pass on the benefit of reduced costs to them.
Operating on a digital platform is more cost-effective for cable operators
- Digital platforms are more bandwidth efficient and are much easier to maintain and service.
- As cable operators provide more advanced services like VOD and HD-DVR--and as the number of Internet subscribers grows--they will need more bandwidth to satisfy the customers
- Thus, all cable operators are actively upgrading their existing infrastructure, as they look to reclaim bandwidth and increase efficiency.
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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