With the two largest U.S. cable companies — Comcast and Charter Communications — expected to release third-quarter results later this week, investors are bracing for a big slowdown in broadband subscriber growth. But at least one analyst believes the decline won’t be quite as jarring as some may expect.
In an Oct. 20 report, Evercore ISI media analyst Vijay Jayant wrote that while Q3 broadband subscriber increases will be lower than they have been in the past few quarters, it won’t be that dramatic of a decline.
This comes just as cable operators are preparing to release their Q3 results. Comcast is expected first out of the gate, with its Q3 earnings report due on Oct. 28, followed by Charter (Oct. 29), Altice USA (Nov. 4) and Cable One (Nov. 4).
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“Broadband growth may be slowing, but we don’t think it’s dropping off a cliff,” Jayant wrote, adding that cable stock prices have dropped considerably since Comcast said it was seeing high-speed internet subscriber additions off a little bit in August. “We don’t believe that these comments indicate that the broadband market is experiencing a dramatic shift, however, and expect continued healthy subscriber growth, with nearly 900,000 subscriber net adds in 3Q, of which we expect cable to capture [about] 75%.”
While Comcast’s admission that broadband growth was slowing did send the sector down a bit, cable stocks fell hard after Altice USA CEO Dexter Goei told the Goldman Sachs Communacopia conference his company would lose between 15,000 and 20,000 broadband customers in Q3. In the past month (Sept. 22 to Oct. 22), cable distribution stocks are down about 6%, with Altice USA falling the hardest (down 26.2%), followed by Cable One (down 6.7%), Comcast (down 2.8%) and Charter (down 2.7%).
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Jayant’s optimism is fueled by the relative scarcity of strong new broadband competition — he estimated that only 35% of cable households have a fiber-to-the-home competitive option, and fixed wireless availability is still in the low single-digit percentages. In addition, recent pricing changes for cable wireless offerings (which can only be sold with a broadband connection) should help stabilize high-speed internet subscriber rolls.
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On the cable side, Jayant was encouraged by low non-pay and move churn. The analyst wrote that government programs like the Emergency Broadband Benefit Program (EBBP) and child tax credit payouts may have helped keep non-pay churn in check, while move churn, despite the red-hot housing market, may be lower due to renters who have opted to stay put. Jayant noted that as much as 60% of annual move churn is due to renters.
As a result, Jayant estimates that Comcast will add about 280,000 residential broadband customers in the third quarter, less than half the 617,000 customers it added in the same period last year during the height of the pandemic. He predicted Charter would add about 325,000 broadband customers (compared to 494,000 additions in Q3 2020) and Altice USA would lose 20,000 customers (versus adding 28,000 in Q3 2020). Cable One, which added 28,000 broadband customers in Q3 2020, will see that slow to 15,000 additions in Q3 2021, according to Jayant.
Slow Start to Q3
Overall, the Evercore analyst expects cable broadband growth to slow by about 42% in Q3 2021 to 665,000 additions from 1.36 million in Q3 2020. Those numbers should pick up in the fourth quarter — Jayant estimated that cable would add 710,000 broadband customers in Q4 2021, compared to 859,000 additions in Q4 2020. For the full year, cable broadband customer additions will be down about 33% to 3.1 million from 4.6 million in 2020.
Video subscriber erosion will continue, according to Jayant, who expects pay TV to lose about 1.7 million customers in Q3 2021, up by 300,000 sequentially. For the full year, Jayant estimates cable operators will shed about 3.2 million video customers, up from a loss of 2.4 million in 2020. While virtual MVPDs will take up some of that slack — Jayant predicted they would add about 1.5 million video customers in 2021 — it won’t be enough to stop the bleeding. Jayant predicted that total pay TV subscriber losses, including cable, vMVPD, satellite and telco operators, will rise 1% to 4.72 million from 4.68 million in the prior year.
