Zinger Key Points
- Scotiabank downgraded Comcast to Sector Perform, citing broadband struggles and pricing pressure from its new mobile bundling strategy.
- Comcast's broadband losses mount, but its mobile-broadband bundles aim to boost customer retention despite potential ARPU dilution.
- Get Pro-Level Earnings Insights Before the Market Moves
Scotiabank analyst Maher Yaghi downgraded Comcast Corp CMCSA from Sector Outperform to Sector Perform and lowered the price target from $48 to $44.50.
Comcast announced a new strategy to capitalize on the increasing demands for convergence, with a goal of boosting its current 12% wireless/broadband penetration.
In 2025, the company plans to push harder by packaging mobile services with higher-tier broadband products.
New and select existing broadband customers picking internet speeds of 300MB or higher will receive a free wireless line. While Yaghi noted this could dilute ARPUs, management is optimistic that broadband ARPU growth will remain healthy in 2025. Additionally, the company highlighted a continued focus on network upgrades to support more potent, integrated products across mobile and broadband. Management emphasized offering simplified bundles and pricing structures, a previous pain point, for new and existing customers.
Comcast reported 139K in domestic broadband losses during the quarter (versus -34K previous year), worse than Yaghi’s -105K and consensus of -95K. As management highlighted in the previous quarter, weak loading was likely due to impacts from the two hurricanes, which have adversely affected their cable systems and the seasonal tailwind of viewers returning to the Southeast.
Broadband continues to operate in a very competitive market as it competes with fiber and FWA offerings. Still, the company expects the new broadband/mobile converged strategy, as discussed above, to help acquire new customers and retain existing ones. The offering has yet to be rolled out nationwide, so Yaghi does not expect the first half of 2025 net adds to show any material improvement.
Yahi noted that Comcast is growing faster than many peers due to three of its profitable and growing business units. The analyst also noted that fiber competition from incumbents is unlikely to cause significant pain in the short to medium term in the U.S. and that wireless could be the biggest driver for the stock in the medium to long term.
He also noted that its theme parks and media assets are cyclical and exposed to U.S. economic weakness. However, considering the relatively small size of these assets, Yaghi mentioned that Comcast has already priced in some risks, given the stock’s currently low multiples.
Comcast bleeds broadband customers due to Fixed Wireless Access (FWA) and increasing fiber competition.
Comcast intends to begin offering combo plans to customers using the internet at speeds above those provided by FWA services, with a free wireless line as a retention tool to protect market share.
While this strategy will dilute ARPU and margins, management expects to garner lowered churn rates on broadband as a result.
The U-turn on broadband strategy will likely pressure FCF generation and is not guaranteed to protect broadband market share in the long term.
As a result of this more aggressive pricing strategy, Yaghi reduced his multiple to the connectivity business from 7.0 to 6.5x, resulting in a lowered target price and rating. The analyst expects the stock to remain pressured until markets see signs of stabilization on broadband loading.
Yaghi projected first-quarter revenue of $29.97 billion and adjusted EPS of $1.02.
CMCSA Price Action: Comcast stock was down 0.88% at $33.37 at the last check Monday.
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