Comcast shares fell more than 7% Tuesday after chief financial officer Mike Cavanagh told attendees of a virtual investment conference that high-speed internet subscriber growth is expected to slow in Q3, a move that sent other stocks in the sector downward and perhaps a signal that cable’s unprecedented broadband run is nearing the end.
Comcast fell hardest — its stock fell as much 7.6% Tuesday and closed at $55.59 per share, down 7.3%, on Sept. 14 — but other stocks in the sector took a hit as well. Charter Communications shares closed at $761.86, down about 4%, or $31.21 each on Tuesday, while Altice USA shares fell 3% (82 cents) to $26.61 and Cable One dipped 4.1% ($81.84 each) to $1,908.16 per share.
Investors have been worrying about a slowdown in the broadband segment for several months and most expected a steep slide in Q2, as the impact from pandemic fueled lockdowns began to wane. When that sharp decline didn’t happen — Q2 broadband growth was lower than the previous year but nowhere near the falloff expected — observers began to wonder if the business had a few more quarters of strong growth still left in it.
At the virtual Bank of America Media, Communications & Entertainment conference Tuesday, Cavanagh said the company expects broadband growth to mirror 2019 levels, something he has also said in the past. But it was enough to spook investors, who have been waiting for the next shoe to drop in cable’s extraordinary broadband growth story.
“What we’re seeing in the most recent past, the tail-end of August, is a little bit of a slowdown in the cable business,” Cavanagh said at the BofA conference. The CFO has been saying for months that investors shouldn’t count on the huge growth in 2020 to continue — Comcast added nearly 2 million broadband customers that year, compared to 1.4 million additions in 2019. In the first half of this year, Comcast has added about 815,000 broadband customers, slightly ahead of the 800,000 it added in the first half of 2020. Comcast’s biggest broadband gains came in the second half of 2020 — about 1.2 million additions, compared to 821,000 additions in the second half of 2019 — so a return to 2019 levels could be perceived as a big decline for the company.
Analysts had expected Comcast to add about 397,000 broadband customers in Q3, down from the 633,000 additions in the same period last year but in line with the 379,000 additions in Q3 2019.
Comcast still believes it is on track to exceed 2019’s full-year broadband subscriber growth of 1.4 million, and analysts’ consensus estimates have the company finishing the year with 1.6 million broadband additions.
In a research note, Wells Fargo Securities media analyst Steven Cahall wrote that the market’s reaction to Cavanagh’s comments highlights the volatility around broadband.
“Clearly, cable sentiment is fragile,” Cahall wrote.
While there remains a clear bull and bear case for overall broadband growth — bulls claim gaming, consumers working from home and products like virtual reality will continue to drive the need for speed, while bears point to ever-climbing penetration rates as proof the segment can't continue to grow at the same pace — Cahall is squarely in the middle.
“Our bias is increasingly skewing negative for the group,” Cahall wrote, adding that he has been historically bearish on Comcast, cautious on Altice USA and sees Cable One as more insulated because of its mainly rural footprint. “We think one conference data point does not yet make the long-term trend for Cable, but our expectation is that sentiment for the space will continue to trend more negative.”
