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Investment Overview for Comcast (NASDAQ:CMCSA)

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Comcast Buys British broadcaster Sky

Comcast's $30 billion offer took full control of Sky and its 23 million subscribers in 2018 - to help them compete against new streaming competitors like Netflix and Amazon, especially with the market in the US dwindling. Sky is important in what it represents — an existing distribution network for big chunks of the European market, which the US-based Comcast is eying to expand their content into more markets. Combined, Comcast and Sky become the biggest provider of pay TV (cable, satellite and telecom TV services) in the world, with 52 million customers.

Growth In Broadband Revenues Insulating The Company From Cord Cutters

Comcast's Cable TV business provides video, high-speed internet, voice, and security and automation services to residential customers under the Xfinity brand. Video competition from virtual MVPDs has been challenging lately, which resulted in Comcast's residential video subscriber base declining 2% y-o-y and consequently, its video revenues falling 2% y-o-y in 2018. However, the company is working on its high-margin connectivity businesses, residential high-speed Internet and business services, in order to offset this cord cutting pressure. In 2018, the internet user increased 5% y-o-y. While cord cutting is likely to weigh on Comcast's revenues, the popularity of Xfinity Double and Triple Play bundling should continue to largely offset these declines. In addition, Comcast is also aggressively pursuing over-the-top (OTT) streaming services, with the launch of Xfinity Stream and the recently rolled out Xfinity Instant TV across markets that the company already serves. Although the company currently does not provide the breakdown for its OTT service, we believe that the streaming service will be instrumental in retaining and attracting consumers for Comcast's cable offerings.

NBCUniversal has become an important growth driver for Comcast

NBCUniversal constitutes approximately 41% of Comcast’s total value and includes the cable and broadcasting networks, theme parks, and movie businesses. NBCUniversal reported revenues of approximately $36 billion for the full year 2018, a 9% jump as compared to the prior year. NBCUniversal’s theme park business is also trending well and is generating stable cash flow for the company. Both the Broadcast Television division and the cable TV business reported stable growth during this period. Consequently, we believe that NBCUniversal will continue to perform exceedingly well for Comcast in the coming quarters.

Deal with Netflix

Netflix and Comcast have joined forces in a bid to leverage their respective strengths in video streaming and cable TV. This will bring an end to the business rivalry that has characterized their previous relationship. In order to mutually benefit from this collaboration, Comcast will allow Netflix onto its X1 platform, which more than 32% of Comcast’s video customers use. Netflix will gain access to not only a large and previously untapped platform but (in all likelihood) new content from Comcast as well. Additionally, this will give a boost to its subscriber growth. For Comcast, there is potentially a multitude of benefits, including a subdued competitive threat, stability to the subscriber base, and reduced scrutiny from regulators. In simpler terms, since a lot of Comcast’s cable customers are already using Netflix, it makes sense for the cable-television company to bundle the Netflix app into its service.

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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 $95 by the end of our forecast period as compared to $89 in 2018. However, there could be more than 10% upside to our price estimate if Comcast can raise its subscription prices and the average fees stand around $110 by the end of our forecast period. On the other hand, there could be a downside of more than 5%, if the company fails to pass the rising costs to its customers and the subscriber fees stay range-bound around $80 levels.

Comcast Broadband Subscriber Fees: We estimate this figure to grow from $52 levels currently, to $69 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 $75 in the coming years. On the other hand, there could be a 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.

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High number of subscribers

Comcast has around 22 million pay-TV subscribers and over 27 million broadband subscribers. 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 $90 per month from its pay-TV subscribers compared with $46 per month for broadband subscribers.

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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 franchises

Comcast's Universal movie studio had a great year in 2017, delivering a number of notable hits. Additionally, 2017 promises to be a good year with a rich slate of movie releases. The most pleasing part of Universal’s success is that the studio has a blueprint to replicate the success it achieved in 2017. The studio continues to build 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 2016-2017 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 2016-2017 season as well. Though viewership has been down compared to 2016 Rio Olympics, that has to do with the prevailing change in viewing dynamics. NBC inked a $7 billion deal for broadcasting all the Olympic events till 2032, which bodes well for its advertising revenues.

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.

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?

1. We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
2. 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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