How Will Fee Hikes Across Broadband, Pay TV Services Impact Comcast’s Valuation?
Comcast’s (NASDAQ:CMCSA) cable TV and broadband Internet businesses have reported growth in revenues despite intense competition and secular pressures facing the industry. The company has been able to do so by periodically increasing the fees for its Cable TV and Internet services, and recently announced a new round of fee hikes for these services
We have created an interactive model that details how changes in average fee per user for both the cable-TV and broadband Internet can impact Comcast’s market price. You can modify assumptions such as the growth in the average fee per user to see how the dynamics of ARPU/market price sensitivity change.
Our price estimate for Comcast stands at $41, which is roughly in line with the market price.
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The hike in fee per user is relevant for Comcast as it not only helps the company to report growth in revenues but also maintain and improve its services, especially in the face of increasing content costs of Internet traffic costs. Historically, the company has been able to hike its Pay TV and Internet fees per subscriber by an average of around 3%. While we currently project similar growth going forward, the recently announced hike is more than the historical average. As a result, if the company manages to hike its fees at an increasing rate in the future without accelerating subscriber losses, there could be a 5-10% upside to our price estimate for the company’s stock.
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