Comcast’s High-Speed Internet Business: Subscriber Base, ARPU Growth Likely

Comcast‘s (NASDAQ:CMCSA) high-speed Internet operations account for 24% of the company’s stock value, according to our estimates. 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. This trend 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. We expect the company’s high-speed Internet business to continue to bring in more customers, while sustained growth in ARPU will translate into growth in EBITDA. Consequently, we estimate that high-speed Internet EBITDA will grow from around $6 billion currently to $9.1 billion by the end of our forecast period and will account for 26% of the company’s overall EBITDA.

Our price estimate for Comcast stands at $71, implying a premium of close to 15% to the market.

See our complete analysis for Comcast

Continued Growth In High-Speed Internet Subscribers

The increasing need for speed and connectivity is driving high-speed Internet growth in the United States. The higher penetration of smartphones and use of multiple devices are also aiding overall growth. As a result, Comcast has seen rapid high-speed Internet subscriber growth over the past few years. The company’s subscriber base has increased from 13 million subscribers in 2007 to almost 23 million by end of the third quarter this year. ^[1] The overall industry  – with 17 high-speed Internet service providers representing 94% of the total market – added more than 2 million net subscribers during the first nine months of 2015, taking the total subscriber base to 89.5 million. ^[2]) Comcast alone accounted for approximately 40% of the overall subscriber additions during this period, and now commands a high-speed Internet market share of close to 25% in the U.S.

Internet video, on-demand and online gaming account for the majority of traffic in the country. These activities require high data volume, which explains why the reliance on fixed networks is comparatively greater than for mobile carriers. Moreover, the traditional boundaries between cable service providers and telecoms are getting blurred, and all operators are looking to bundle video, high-speed Internet and voice services together. We also believe that high-speed Internet penetration in the U.S. has enough room to grow in the coming years. Currently, around 77% of households with Internet service at home have a high-speed connection. ^[3] We estimate that this figure will increase to around 90% in the long run. We believe that all these factors will continue to drive growth for cable operators in the coming years. Accordingly, we estimate that Comcast’s high-speed Internet subscribers will grow to 28.6 million by 2022.

High-Speed ARPU Will Continue To Increase

High-speed Internet revenues have nearly doubled from $6.4 billion in 2007 to $11.3 billion in 2014, and the segment now accounts for close to 17% of the company’s overall revenues. ^[4] The increase in revenues is partly due to growth in the average monthly revenue per user (ARPU) for high-speed Internet services. The segment ARPU has increased from $40.58 in 2009 to over $50 in 2014. We expect this trend to continue in the coming years, and forecast ARPU to be north of $66 by the end of our forecast period. This growth will primarily be driven by the rising demand for higher-priced tiers with higher speeds. Almost 50% of Comcast’s subscribers receive Internet speeds of more than 50 Mbps, reflecting the demand for high-speed connectivity. ^[5] This demand for higher speeds is due to the spike in consumption of online video streaming and gaming services. Moreover, the rapid growth in Comcast’s business services is driving the ARPU upwards. We estimate that high-speed Internet EBITDA will touch $9.1 billion by the end of our forecast period and will account for 26% of the company’s overall EBITDA.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Comcast’s SEC Filings [↩]
2. ABOUT 645,000 ADD BROADBAND IN THE THIRD QUARTER OF 2015, November 17, 2015, Leichtman Research Group [↩]
3. Akamai’s state of the internet Q2 2015 report, Akamai [↩]
4. Comcast’s SEC Filings [↩]
5. Comcast Corporations’ (CMCSA) CEO Brian Roberts on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]