Cable companies are being downgraded by Wall Street analysts in response to weak broadband growth coming out of the pandemic.
Why it matters: Cable companies have managed to stay afloat amid the cord-cutting crisis thanks to their booming broadband businesses. But some analysts see that safety net beginning to fade.
- Jonathan Chaplin, managing partner at New Street Research, wrote in two notes to clients that the firm has lowered its broadband subscriber estimates for the second time this year for both Charter and Comcast.
- "We have limited conviction in a quick recovery, given limited visibility all around," he wrote regarding Charter. "We are hoping for a turnaround later in the quarter but have low conviction," he wrote regarding Comcast.
Driving the news: Comcast's stock slid last week after it reported flat broadband subscriber additions for the second quarter of 2022.
- The telecom giant was still able to increase broadband revenues, but its growth has been slowed by increased competition and more users relying on mobile hotspots and fixed wireless plans.
- Charter lost broadband subscribers for the first time last quarter. Executives cited customers rolling off the government's broadband subsidy program as a major contributor to its customer loss.
- "Excluding that headwind, we organically grew 38,000 internet customers in the quarter," Charter chief financial officer Jessica Fischer told investors.
Between the lines: The federal government’s new program to help low-income households afford internet service decreased the monthly discount from $50 a month last year to $30 a month this year.
- Charter noted it lost customers in the transition, because they either opted not to continue their service or didn’t meet the requirements for the Affordable Connectivity Program, particularly the requirement that customers use their service in each 30-day period.
Yes, but: Both companies pointed to low churn figures, which suggests part of the loss is attributable to a slowdown in moves across the country, due to supply chain issues and inflation, which resulted in fewer new customers.
- "[T]here’s been a dramatic slowdown in moves across our footprint with the second quarter below 2019 by 12% and the lowest we’ve experienced since the pandemic began," said Comcast CEO Brian Roberts.
The big picture: Telecom giants began the massive pivot to broadband once their core business of pay TV was threatened by cord-cutting around a decade ago.
- In that time, broadband "ushered in a decade-long rally in cable stocks," wrote Craig Moffett, senior analyst at MoffettNathanson. "Act II is now ending."
- "Charter’s broadband print, like Comcast’s yesterday, had a decidedly 'end of an era' feel," he wrote.
By the numbers: According to data from S&P Global Market Intelligence, the rate of subscriber growth for wireline broadband has dropped to pre-pandemic levels, with the highest growth rates occurring during the back end of 2020.
What's next: Analysts argue that mobile and wireless internet will continue to be a bright spot for cable companies looking to withstand fixed broadband losses, but executives believe slowed broadband growth is only temporary.
- [W]e certainly expect a return to residential broadband subscriber additions," Roberts told investors. To remain competitive, Comcast plans to continue investing in plans bundling broadband with wireless.
- "[W]e're pretty optimistic, relatively speaking, that as the post-pandemic market activity levels return and normalize, that our share of broadband growth will rise," Charter CEO Tom Rutledge told investors.
Bottom line: "Everyone is sad that Act II (broadband) is over… but we’re in for a rousing Act III (mobile)," Moffett said.