Comcast (NASDAQ:CMCSA) has seen rapid growth in its broadband business in recent years. The increasing need for speed and connectivity is driving broadband growth in the U.S. The higher penetration of smartphones and use of multiple devices are aiding overall growth. Internet video, video-on-demand and online gaming account for the majority of Internet traffic in the U.S. Video streaming, for instance, requires high data volumes which explains why the reliance on fixed networks is far greater than that on mobile carriers. We believe these factors will continue to drive broadband growth for cable operators such as Comcast. We also note that there is enough room left for broadband to penetrate in the U.S. Currently, broadband coverage is around 70%. It is estimated to reach 74% of U.S. households in the next four years and cover more than 90% in the long run. 
We currently have $56 price estimate for Comcast, reflecting more than 10% premium to the current market price.
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During the past few years, cable operators such as Comcast have been losing pay-TV subscribers due to rising competition from telcos, satellite operators and alternative video platforms. However, during the same period, broadband was fueling growth for the company. From 13 million subscribers in 2007, Comcast’s broadband base increased to a little under 21 million in 2013. The overall industry (17 largest players representing 93% of the industry) acquired 2.6 million new broadband subscribers in 2013, taking the total subscriber base to 84.3 million.  It must be noted that 59% of these were cable subscribers. This indicates a good growth opportunity for cable operators such as Comcast, which added 1.3 million broadband subscribers in 2013, representing 50% of total net additions in the entire industry.  The following chart from Leichtman Research Group shows broadband subscribers and net adds among telcos and cable companies in 2013.
Comcast offers high speed Internet to more than 20 million customers, and we expect this number to reach around 33 million by the end of our forecast period. Driving this growth will be further market penetration in the U.S. and increasing demand for high priced tiers for video streaming. It must be noted that this estimate does not consider Time Warner Cable’s (NYSE:TWC) broadband subscribers. If the Time Warner Cable merger is approved, the cable giant will straight away control 33% of the broadband market in the U.S.  (Also Read – What Does Time Warner Cable’s Merger With Comcast Mean For The Industry?) This will be meaningful for a business with EBITDA margins of over 40%. We estimate the monthly fee per broadband subscriber to continue to grow at an average annual rate of 3%, translating into broadband revenues of more than $23 billion by the end of our forecast period.Notes:
- Broadband Internet Penetration Deepens in US; Cable is King, IHS Technology, Dec 9, 2013 [↩]
- 2.6 Million Added Broadband from Top Cable and Telephone Companies in 2013, Leichtman Research Group, Mar 17, 2014 [↩]
- Comcast’s SEC Filings [↩]
- American regulators should block Comcast’s proposed deal with Time Warner Cable, The Economist, Mar 15, 2014 [↩]