Comcast lost 100,000-150,000 subscribers in 90 days

By September 1st, 2017, Comcast’s stock declined by 5% in a single day after Matthew Strauss, executive vice president for Comcast’s Xfinity services, said that the company expects to report a loss of 100,000-150,000 subscribers in Q3. Mr. Strauss cited competition and Hurricane Harvey for the losses and said that Q3’17 is looking like the “most competitive quarter” in recent history. While this loss of subscribers accounts for less than 1% of Comcast’s cable TV viewer base of 22.5 million, it is still significant as the company added close to 149,000 new subscribers in 2016 and this loss could negate all the gains from the previous year. Nevertheless, we expect that this will have a fairly limited impact on Company’s top line in the short term, and shouldn’t persist over the long run as the company plans to launch its own over the top internet video streaming service to tackle the secular decline in Pay TV services due to cord cutting measures.

Why This Subscriber Loss May Not Impact Comcast’s Short Term Revenues

• Comcast has a diversified business: The Cable TV business accounts for 30% of Comcast’s revenues and 27% of our estimated total value for the company. In the past few quarters, its other businesses, which include NBCUniversal, Internet and advertising, have reported double digit growth in revenues, while Cable TV has reported low single digit growth. This leads us to believe that the company is sufficiently diversified to absorb any pressure on revenues from cable TV business.
• Hike In Subscription Fees To Offset Loss Of Subscribers: In the previous quarters, Comcast’s Cable TV business was able to report growth in revenues due to rate hikes for its cable services and its continued deployment of the digital X1 platform. In the past, such rate hikes have had little impact on its subscriber base. In fact, the company reported an addition of 32,000 subscribers last year after the annual rate hike. The company has initiated another rate hike, which will come into effect on October 1, for its cable TV services. We believe that this rate hike will largely offset the pressure on revenues from the loss of subscribers. Currently, we estimate that the Average fee per TV subscriber will grow from $89 in 2017 to over $103 by 2024.

Online Streaming Services

While the company was losing subscribers due to cord cutting, Hurricane Harvey may have exacerbated the subscriber loss in 2017. However, we believe that this loss in subscriber base due to Hurricane Harvey is a transitory phenomenon, and the company is taking proactive measures to address the secular downturn in cable pay TV services.

According to a Bloomberg report, Comcast is planning to launch an online video service in the next 18 months. While directly competing with OTT SVoD services such as Netflix, Comcast will broadcast hit shows from the company’s NBC Universal TV networks and may also include shows from other networks in order to pass regulatory muster. Comcast has the advantage of a strong content library which can be exploited through such a streaming service. While we believe that the company might struggle to reach a scale that can challenge the incumbents in the short term, this service can insulate the company somewhat from the aforementioned subscriber losses. In the long term, the company can add more content to its online video library and generate revenues either through the bundling of these services with its existing packages or offer standalone subscription services. Whether it will generate significant revenues, however, remains to be seen.