Here Are The Key Growth Drivers For Comcast

While the Pay-TV industry undergoes a transition, with an increasing number of consumers “cutting the cord”, diversified sources of revenue are keeping up the momentum for Comcast (NASDAQ:CMCSA). Its broadband internet service is gaining subscribers, leading to strong growth of its cable communications segment. We believe that, as the company invests in technology and looks to provide high speed internet access to a growing numbers of U.S. users, this can be a key value driver for the company. Comcast’s  NBC division is another strong growth driver for the company.  Theme park revenues increased significantly in Q2 2016 and the company is looking to increase its number of theme parks, tapping into China. We believe that the Pay-TV segment is likely to continue losing subscribers in the future.  Still, Comcast’s strategy to tie up with Netflix should ensure that these losses are minimal by allowing users to view streaming media using a Comcast X1 box.

See our complete analysis for Comcast

Internet Services

According to our estimates, Broadband Internet accounts for nearly 24% of Comcast’s valuation and we expect its broadband market share to grow slowly from around 24.6% in 2016 to around 25.6% by the end of our forecast period.

Demand for high speed internet is increasing as consumers increasingly stream videos and high quality content. This viewing requires better broadband access. Comcast has been continuously investing in broadband technology and has a high speed network  in place, giving the company a competitive advantage in this segment. Comcast also bundles video, voice and data services, which proves cost effective for consumers. The company’s internet subscriber base has been growing rapidly in the past few years and in Q2 2016 it saw a 22% year on year subscriber growth. While internet speed in the U.S. has a lot of scope for improvement, we believe that, with investment in the right technology, this segment can be a growth driver for Comcast in the long term.

NBC Universal

According to our estimates, the NBC and Comcast Content segment (which comprises of Theme Parks, Filmed Entertainment, Cable Networks and Broadcasting) is the most valuable division for Comcast, accounting for  36% of its valuation. While film entertainment revenues declined in Q2 2016, theme park revenues and broadcast television sales saw strong growth. In 2015, the company’s Broadcast Television segment maintained its number one ranking for Prime Television shows. This popularity is reflected in higher advertising and licensing revenues. We believe that, as Comcast maintains focus on highly sought after, high quality content, this segment should be a growth driver for the company. Comcast is also investing heavily in its theme parks and this has started showing results. After a $100 million investment in Universal Orlando in 2013, the company saw a  10.4% increase in attendance.  The company is now working on building a $ 3.25 billion park in Beijing, which is slated to open in 2019. Our estimated EBITDA (earnings before interest tax depreciation and amortization) margin for Comcast’s Theme Parks is around 41%,  which is higher than Disney’s theme parks.  We expect the company to maintain this margin over our forecast period.

We believe Comcast is well hedged against Pay-TV subscriber losses with diversified sources of revenue. While internet services and NBC Universal can be its key growth drivers in future, we believe its cable TV business will also continue to contribute towards its growth. While Comcast is facing subscriber losses, these are much lower than competitors due to the company’s innovative ways (such as the recent deal with Netflix ) to retain subscribers.

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