MoffettNathanson joined the recent chorus of a steeper-than-anticipated slowdown in broadband subscriber growth for the second quarter, expecting large operators like Comcast and Charter Communications to report less than half the customer gains they did in Q1, while wireless customer additions are anticipated to maintain their recent upward momentum.
After its purchase by SVB Financial Group, MoffettNathanson was required to reinitiate its coverage of the sector, and on Tuesday (July 12) it did just that. Of the nine cable and telecom stocks MoffettNathanson follows, four have an “outperform” rating: T-Mobile, Comcast, Charter and fixed-wireless access provider Starry. The rest — Altice USA, Cable One, AT&T, Verizon Communications and Dish Network — have a “market perform” rating.
Several analysts have already modified their broadband subscriber growth forecasts for the bigger operators, with some expecting full-year 2022 additions to be nearly one-third of those of the peak year of 2020. Driving those modifications are the added pressure of increased fiber buildouts by telcos like AT&T and Verizon, aggressive pricing, the near disappearance of digital subscriber line customers — once a top feeding ground for cable broadband — and sluggish new household formation.
In his report, MoffettNathanson senior analyst Craig Moffett estimated that both Comcast and Charter would report broadband growth of 91,000 and 90,000 in Q2, less than half the 262,000 and 185,000 they added, respectively in Q1.
Broadband to Rebound a Little
Moffett, like other analysts, expects the declines to soften over the next five years, but not enough to reach even the prepandemic levels of 2019. He expects Comcast, the largest cable operator in the country, to end 2022 with an additional 698,000 broadband customers, about half the 1.358 million it added in 2021. Charter, he wrote, should add about 716,000 broadband customers in 2022, compared to 1.2 million additions in 2021.
In later years, the gap between Comcast and Charter should widen. Moffett expects Comcast to add 751,000 broadband customers in 2023; 767,000 in 2024; 784,000 in 2025; and 800,000 in 2026. For Charter, year-end additions should be 824,000 in 2023; 873,000 in 2024; 902,000 in 2025; and 925,000 in 2026.
But in his report, Moffett attributed the slowdown in broadband additions for both Comcast and Charter to the fact that the market is nearing saturation, not new or more competition. That, he wrote, is “a view that implies further slowing but no outright reversals.”
Moffett also believes that the market is not giving either Comcast or Charter enough credit for their respective wireless businesses. And he expects them to continue to grow robustly.
In the report, Moffett estimated that Comcast would add 320,000 wireless subscribers in Q2, up slightly from Q1 additions of 318,000 customers. For the full year, he predicts Comcast will add about 1.3 million customers — up from 1.15 million in 2021. Between 2023 and 2026, Moffett anticipates wireless additions to be a steady 1.25 million customers per year.
Charter’s wireless additions should dip to 318,000 in Q2 from 373,000 in Q1, but for the full year Moffett anticipates growth to 1.4 million additions, up from 1.2 million in 2021. However, he sees wireless additions slowing to 1.2 million in 2023, 1.1 million in 2024; 960,000 in 2025 and 860,000 in 2026.
Altice USA, which reported a loss of 13,000 broadband subscribers in 2021, should lose about 9,000 in Q2 and 6,000 for the whole of 2022. From there, the prospects look a little better — Moffett estimates it will gain 23,000 broadband customers in 2023; 78,000 in 2024; 81,000 in 2024 and 83,000 in 2025. Wireless additions are expected to be about 41,000 in 2022, rising to 76,000 by 2026, according to Moffett.
Cable One should continue with modest gains in broadband customers, adding 7,100 in Q2 — down from 13,000 in Q1 — and 41,700 for the full year. Growth should be fairly steady from there, according to Moffett, who estimates it will add 42,100 in 2023; 41,700 in 2024; and 41,900 in 2025. Cable One does not have a wireless offering yet.
On the telco side, aggressive fiber buildouts and pricing should help boost subscriber numbers significantly.
High Upside for T-Mobile
Moffett was most impressed with T-Mobile, his top pick in the telecom sector, for its aggressive deployment of 5G technology and its competitive pricing structure.
“The combination of a single telecom operator having both the industry’s best network and its lowest prices is unprecedented, and we believe paves the way to significant share gains,” Moffett wrote, adding that opportunities in rural markets and business customers “underscore the attainability of these gains.”
As a result, Moffett expects T-Mobile’s postpaid net additions to be 1.3 million in Q2, even with Q1. For the full year, he expects postpaid net additions to be 5.9 million, up from 5.6 million in 2021.
Telcos AT&T and Verizon aren’t expected to fare as well, mainly due to saturation and the wireless threat from cable. Moffett expects AT&T to have about 750,000 postpaid additions in Q2, down from 965,000 in Q1. For the year, net additions should be 2.8 million (down from 4.4 million in 2021) and sliding to 1.1 million in 2023, 850,000 in 2024 and 650,000 in 2025 and 2026.
“As subscriber growth in an already-saturated wireless industry decelerates back towards population growth, we believe AT&T will be hard-pressed to post positive unit growth,” Moffett wrote.
At Verizon, aggressive pricing should boost subscriber numbers briefly -- Moffett predicts they will add 440,000 postpaid subs in Q2, nearly double the 269,000 additions in Q1. And though that will boost growth in 2022 above the prior year (2.3 million versus 2.1 million), those additions are expected to temper in later years. Moffett predicts postpaid net additions at Verizon will slip to 2.1 million in 2023, 1.8 million in 2024, 1.5 million in 2025 and 1.4 million in 2026.
“We believe Verizon faces a challenging path forward,” Moffett wrote.
Fixed-wireless access provider Starry should continue to do well, reaching about 63,200 customers in 2021. That number could increase ten-fold by 2026 to 649,200 according to Moffett, but it will depend on the company’s ability to raise capital. It already has proven its technology works and can reach apartment dwellers relatively easily, and Moffett wrote that he expects costs to serve single-family homes will fall enough to make serving that segment attractive.
“We believe they can achieve sufficient penetration at sufficiently high prices to earn an attractive return on capital in each individual market they launch, and that they can, in turn, ‘stack’ markets to achieve attractive returns as a whole,” Moffett wrote. “The fly in the ointment may be a circular argument related to their stock price itself: scaling their business will require raising additional capital. If their stock price is close to or above warranted value, it would not be a problem (and it won’t be dilutive). If, on the other hand, their stock price is meaningfully below warranted value (as it currently is), then a capital raise — which should be necessary one way or the other — would be substantially dilutive.” ■
