How Is Comcast Continuing To Grow Cable Revenues Despite Cord Cutting?

The media industry is in a transformative phase, as streaming media and live videos on social media take center stage, threatening the traditional pay TV industry. Nevertheless, Comcast (NASDAQ: CMCSA) was able to grow its cable revenues from $20.5 billion in 2013 to over $23 billion in 2017 despite the threat of cord-cutting. In fact, Comcast’s consolidated revenues grew 6% year-over-year (y-o-y) to $44.5 billion, and its adjusted EBITDA grew 4% y-o-y, reflecting solid growth at the Cable Communication and NBCUniversal segments, in the first half of fiscal 2018. Comcast continues to benefit from gains in broadband revenues, which has helped the company offset declines in video revenues (as residential subscribers continue cutting the cord). In addition, NBCUniversal continues to see strong results in television (broadcast and cable) amid higher distribution, advertising, and licensing revenues.

Comcast’s stock is down over 10% year-to-date, due to weakness in its pay-TV business as a result of cord cutting. We have maintained our long-term price estimate for Comcast’s stock at $41, which is around 15% ahead of the current market price. We have also created an interactive dashboard on Comcast’s key sources of revenues, which details our key forecasts and estimates for the company. You can modify the interactive charts in this dashboard to gauge the impact that changes in key drivers for Comcast can have on its total revenues.

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 1.9% y-o-y and consequently, its video revenues falling 1.4% y-o-y. 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. 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.

We have estimated 22.3 million video subscribers in the U.S. with an average monthly fee of $89, translating into $24 billion in video revenues in fiscal 2018. Comcast’s video subscribers and voice subscribers have been declining modestly over the last two years due to stiff competition from live streaming media and telecom alternatives, respectively. We expect this trend to continue in the near term as well. However, we expect Comcast’s high-speed internet customers to grow going forward, as the company could benefit from initiatives such as Xfinity Mobile, a wireless service through 16 million WiFi hot-spots.

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