Driving Future Revenue With Broadband, Theme Parks, And Streaming Innovations

Key Takeaways

• Strategic broadband and wireless service expansion, including the launch of new offerings like the NOW brand, aims to boost market share and ARPU.
  
• Investments in Theme Parks and content expansion on Peacock are designed to increase attendance, subscriber count, and spending, positively impacting revenue growth.
  
• Intense competition, consumer behavior shifts, and strategic investments impact Comcast's growth, ARPU, and profitability in its core broadband and connectivity business.

Catalysts

Operates as a media and technology company worldwide.

• The strategic expansion of broadband and wireless services, highlighted by increasing domestic customer lines by 21% year-over-year and enhanced focus on delivering multi-gig symmetrical speeds, points to potential broadband market share gains and solid revenue growth in the Connectivity & Platforms segments.
  
• Deployment of innovative offerings such as the NOW brand for prepaid market segments, alongside the strategic bundling of broadband and mobile services, can enhance customer lifetime value and loyalty, contributing positively to ARPU and subsequently, to revenue growth.
  
• Significant investments in Theme Parks, including the launch of new attractions such as Donkey Kong Country and the upcoming Epic Universe, are expected to drive attendance and spending, impacting revenue growth in the Content & Experiences segment.
  
• The focus on content expansion and enhancement on Peacock, including acquiring high-profile sports broadcasting rights and the release of anticipated movies, aims to increase subscriber count and ARPU, which should contribute to revenue growth in the streaming segment.
  
• Active management of capital allocation, coupled with substantial share repurchase activity, is expected to support earnings per share (EPS) growth, underscoring a strong belief in future revenue and cash flow per share enhancement.

Assumptions

• Analysts are assuming Comcast's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.6% today to 12.5% in 3 years time.
• Analysts expect earnings to reach $15.7 billion (and earnings per share of $4.63) by about July 2027, up from $15.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2027 earnings, up from 10.3x today. This future PE is lower than the current PE for the US Media industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 5.88% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Risks

• Intense competition in the broadband market, especially from providers offering fiber and fixed wireless, could pressure Comcast's subscriber growth and ARPU, affecting revenue growth in its core connectivity business.
  
• The end of the Affordable Connectivity Program (ACP) may lead to increased churn among price-sensitive consumers, potentially impacting Comcast’s broadband subscriber base and revenue.
  
• Investments in network upgrades and expansion (e.g., edge-outs and government-subsidized builds) are essential for growth but may increase capital expenditure, impacting near-term free cash flow.
  
• The shift in consumer behavior towards streaming and mobile-only solutions might reduce demand for traditional broadband services, affecting Comcast's subscriber growth and revenue in the residential connectivity sector.
  
• The increasing focus on the low-end of the market, including the introduction of the NOW brand for prepaid internet and mobile, risks cannibalizing Comcast’s higher-margin services, potentially impacting overall ARPU and profitability in the connectivity segment.

Valuation

• The analysts have a consensus price target of $46.94 for Comcast based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $56.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $126.1 billion, earnings will come to $15.7 billion, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $40.59, the analyst's price target of $46.94 is 13.5% higher.
  
• 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.