Cord-cutting And CRTC Oversight Will Erode Legacy Revenue

Key Takeaways

• Shifts to streaming and demographic challenges are eroding legacy revenue streams and capping long-term growth potential.
  
• High debt, regulatory pressures, and intense competition constrain margins and threaten returns on major network investments.
  
• Rogers is well positioned for sustained revenue and profit growth through technology leadership, successful acquisitions, efficiency gains, and monetization of its sports and media assets.

Catalysts

Operates as a communications and media company in Canada.

• Cord-cutting and increased adoption of over-the-top streaming continue to erode legacy cable TV and video revenue streams, which are unlikely to recover as consumer behavior shifts permanently away from bundled TV toward streaming alternatives, putting long-term pressure on overall revenue and margin stability.
  
• Demographic headwinds, including slower population growth and an aging Canadian population, are increasingly limiting the addressable market for new wireless and broadband subscribers, pointing to stagnant or declining long-term revenue growth and persistent ARPU weakness.
  
• Elevated post-acquisition debt leverage from the Shaw and MLSE transactions, combined with significant ongoing capital intensity for network upgrades and expansion, will constrain free cash flow and diminish the company's ability to invest or respond competitively, thereby depressing net margins and future earnings.
  
• Ongoing and intensifying regulatory and political scrutiny over market concentration, including CRTC policies enabling subsidized wholesale access and the potential for mandated price caps or forced divestitures, threaten to undermine core revenue streams and put further downward pressure on industry-wide and Rogers-specific margins.
  
• Despite heavy investment in 5G, fibre, and satellite initiatives, Rogers risks substantial capital expenditures without proportional monetization, as slower-than-expected uptake or pricing pressure from aggressive competitors and new market entrants (such as MVNOs and global tech firms) could result in suboptimal returns on invested capital and deteriorating long-term earnings prospects.

Rogers Communications Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Rogers Communications compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Rogers Communications's revenue will grow by 3.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.3% today to 8.3% in 3 years time.
• The bearish analysts expect earnings to reach CA$1.9 billion (and earnings per share of CA$3.56) by about September 2028, up from CA$1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, down from 17.5x today. This future PE is lower than the current PE for the CA Wireless Telecom industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

Rogers Communications Future Earnings Per Share Growth

Risks

• The continued growth in wireless and broadband demand, supported by new technology rollouts like 5G Advanced and satellite-to-mobile service, positions Rogers to capture rising data consumption trends, which could drive higher service revenue and profitability in the long term.
  
• Successful integration of Shaw Communications has already yielded improvements in operating margins and leverage, and the expanded subscriber base provides further cross-selling and cost synergy opportunities that may enhance both revenue and net margin growth.
  
• The acquisition of a majority interest in MLSE and a focus on monetizing valuable sports and media assets could unlock substantial unrecognized value for shareholders, potentially boosting net income and supporting higher earnings multiples.
  
• Ongoing cost discipline and efficiency initiatives, particularly in Cable and Wireless, have translated into lower capital intensity and improving free cash flow, which may further strengthen the company's overall net margin and investment capacity.
  
• Industry trends such as increasing demand for bundled services and Rogers' leadership in network reliability and innovation create competitive advantages that could reduce churn, lift ARPU, and sustainably increase both revenue and earnings over the long term.

Valuation

• The assumed bearish price target for Rogers Communications is CA$41.11, which represents two standard deviations below the consensus price target of CA$55.78. This valuation is based on what can be assumed as the expectations of Rogers Communications's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$71.0, and the most bearish reporting a price target of just CA$40.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$23.1 billion, earnings will come to CA$1.9 billion, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of CA$49.14, the bearish analyst price target of CA$41.11 is 19.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.