Comcast

Shares of US wireless carriers and tower firms traded lower after SpaceX claimed that it will use satellite dishes to build a wireless network capable of competing in the US wireless industry. SpaceX also claimed that it will launch 10 times as many V3 broadband satellites as V2.

Why it matters: SpaceX's potential impact on telecom is a key factor in valuations across the industry. We don't believe the firm's comments this quarter change the range of potential outcomes for the industry relative to our prior expectations. Several firms have attempted to build hotspot-type wireless networks like the one SpaceX is contemplating. The cable companies have incorporated public hotspots in tens of millions of broadband modems over the past decade, but these networks still deliver fundamentally limited signal coverage. We view SpaceX's comments as part of its battle with the US wireless carriers for network access rather than a credible threat. To fill areas satellites don't reach well without this access, SpaceX would likely need to build and manage a massive number of sites, just to attack a market that is well served today and not growing rapidly.

The bottom line: We maintain our fair value estimates and moat ratings for the US telecom and tower firms. Both wireless and broadband markets benefit from efficient scale attributes, but this moat source is most at risk in broadband. We recently cut our Comcast and Charter valuations, in part to reflect incremental Starlink competition. We don't expect Starlink to threaten the wireless operations of T-Mobile, Verizon, or AT&T for the foreseeable future. For US tower firms American Tower, Crown Castle, and SBA, we believe SpaceX offers more upside potential than downside risk. We don't factor upside from a SpaceX network buildout into our valuations, but the company would likely need tower sites to provide reliable signal coverage if it chooses to enter the wireless market.

We have trimmed our fair value estimate to $36 from $41. Our valuation excludes any contribution from Versant, which is now a stand-alone company, but still considers the cable and remaining media businesses as a consolidated entity. Our valuation implies an enterprise value of about 6.7 times our 2026 EBITDA estimate. The current stock price yields a multiple of approximately 5 times EBITDA.

Our key overarching assumption is that Comcast remains one of the largest internet access providers in most markets it serves, providing a solid foundation for the firm to build customer relationships, and that competition remains rational, allowing for pricing power over the long term. But we still expect revenue in the connectivity segment to decline 2% in 2026 and 1% in 2027, followed by a very gradual recovery.

We expect the firm will lose net US broadband customers over the next five years as it faces increased competition from the phone companies, fixed wireless, and satellite chips away at the market. We no longer expect broadband customer additions to turn positive by the end of the decade, and now expect losses out to 2035 as new sources of competitive capacity steadily hit the market. We now assume residential broadband penetration drops to 31% in 2035, down from our prior forecast of 35% and from about 44% today.

Broadband prices should increase steadily in the coming years. But with management now looking to push wireless bundles to improve broadband customer retention, we expect revenue per customer will come under pressure over the next two years, growing more slowly than the 3%-4% Comcast has targeted in the past. For 2026, we now expect broadband revenue per customer to decline 4%, pressuring both growth and profitability.

The traditional television business continues to decline, but these customers generate relatively low margins thanks to programming and equipment costs. The wireless business is growing rapidly, but it similarly generates low margins because Comcast must pay for network access. So, while television costs should steadily decline as fewer customers take the service, the cost of wireless network capacity will likely grow quickly as more customers bundle wireless with broadband. On balance, we expect the connectivity segment EBITDA margin to decline to 36% in 2030 from 40% in 2025. We also model connectivity capital spending migrating back toward 13% of revenue from 10% in recent years, as investments to extend fiber optic cable to more locations and deploy new technologies ramp up.

Revenue growth in the content and experiences segment will be volatile, given the timing of big live broadcasting events, notably the Olympics, and the sporadic nature of movie releases. We expect media revenue to be roughly flat over the next few years. We expect NBA rights will allow NBC to negotiate higher fees from television distributors and Peacock to charge higher subscription prices while attracting more customers. NBA games should also generate solid ad revenue. However, we see no end in sight to the decline of the traditional television business. We expect the parks business to generate steady growth as the firm opens new experiences.

We expect media segment profitability to suffer as content investment remains elevated to drive customers to Peacock. We expect the media business to remain far less profitable than before the advent of the streaming business, with margins below 10% versus the roughly 30% that NBCU networks hit before 2020. With the parks business generating high margins, we forecast the consolidated content and experiences segment will hold EBITDA margins in the mid-teens on average over the next several years. Though expanding the parks business requires elevated capital spending, we believe this investment is wise as it builds NBCU’s broader ability to maintain and monetize key content franchises.

We expect Comcast to remain a dominant broadband provider in the US, and this business is the foundation for our narrow moat rating, which is based on efficient scale. The majority of US homes today can receive fixed-line internet access service from only two providers: the traditional cable or phone company. Deploying these networks requires heavy construction spending, which limits the entry of additional competitors.

Cable networks like Comcast's have provided a cost-effective platform to meet evolving customer demands. The costliest upgrade in the industry’s history, primarily undertaken in the late 1990s and early 2000s, involved shifting to a hybrid fiber-coax network architecture, a move that has since paid handsome dividends. This architecture, coupled with steady technological advances, has enabled Comcast and its cable peers to steadily add network capacity at modest incremental cost.

By contrast, phone companies have only been able to meet customer demands through heavy investment to bring fiber closer to customers. Until recently, most phone companies were either unable or unwilling to invest in fiber at scale. However, several phone companies have been investing aggressively in fiber over the past few years, and several private firms have raised capital to deploy new networks. Notably, AT&T began investing in fiber expansion in 2021.The firm’s fiber-to-the-home network now reaches about 38 million locations, including 4 million acquired from Lumen, up from 21 million at the end of 2021. AT&T expects to reach more than 60 million locations by 2030.

Around 60% of Comcast's footprint currently faces fiber competition, and this figure should expand by around 3%-5% annually over the next few years. We suspect that the pace of fiber construction across the US will slow near the end of the decade as the remaining locations yet to be upgraded to fiber are increasingly high-cost. If fiber networks are built in these areas, fiber providers will need to maintain especially high prices to generate acceptable returns on capital.

In addition to fiber competition, fixed-wireless access has started to chip away at the broadband market. T-Mobile and Verizon have taken the lead in marketing FWA, while AT&T has made the service available to many locations as well. We’re skeptical fixed wireless will take significant market share over the medium or longer term, as growing demand from core smartphone users and other mobile applications limits the network capacity carriers are willing to allocate to fixed-wireless broadband. Still, with a huge swath of wireless spectrum licensed in 2020-22 coming online over the past couple of years, the wireless carriers have substantial fallow capacity and huge investments in licenses and equipment looking for a return. FWA will likely prove adequate to serve a portion of customers, pressuring penetration levels and returns on capital for other broadband providers like Comcast.

We don’t think NBCUniversal enjoys the same degree of competitive advantages as the core cable business does. Comcast has modeled NBCU on Disney, in our view, investing heavily to create and bolster core content franchises like Jurassic World and Despicable Me while building multiple outlets to monetize and reinforce their popularity. These outlets include theatrical distribution, a broadcast network that can reach nearly every household in the US, the Peacock streaming platform, and theme parks, in addition to content distribution agreements with third parties around the globe.

Despite the assets at its disposal, NBCU has not been able to avoid the impact of the decline in US pay-TV customers. Comcast has been slow to respond to the shifting media landscape, and its approach has been weak, in our view, throwing money at the Peacock streaming service without a clear vision for the long-term shape of the business. Media revenue growth has lagged far behind content investments, dramatically compressing margins.

The $40 billion Sky acquisition added the UK's largest pay-television operator and a sizable player in Italy as well. While we aren’t fond of the long-term potential of satellite television distribution, the UK market has unique features that enhance Sky’s competitive position. Sky was early to build critical mass in the pay-TV market, enabling it to gain exclusive rights to premium content, notably the English Premier League. The firm was also among the first to recognize the need to own content production, establishing Sky News and an entertainment studio. However, we don’t believe Sky holds a favorable long-term competitive position, given the shifts in the media business. The Sky customer bases in the UK and Italy have been gradually shrinking.

Comcast’s cable networks provide a platform to easily meet customers’ growing bandwidth demands, which should allow for relatively stable market share, ensuring that recurring revenue and cash flow remain strong.

Dense fixed-line networks provide Comcast with the opportunity to push deeper into the business-services market and gradually expand its own wireless network capabilities.

Few companies have as many ways to monetize content investments. With its direct access to consumers across the US and Europe, Comcast should be a destination for the best writers, directors, and actors.

Comcast’s reputation for customer service is poor at best. Its broadband customers are steadily switching internet providers as fixed-wireless and fiber alternatives become available.

Comcast’s businesses are heavily exposed to traditional television. As more consumers turn to online alternatives, the firm will struggle to post any revenue growth.

With $85 billion in debt, Comcast may not have the financial flexibility to pursue major strategic opportunities, like gaining scale for Peacock.