Comcast Stock Deeply Undervalued as Market Misinterprets Zero Growth

Comcast’s CMCSA second quarter was a mixed bag, but the market has keyed in on one negative figure: zero net broadband customer additions during the period, with a loss of 10,000 net residential customers. Very modest broadband growth is likely here to stay; we believe investors are better served focusing on the firm’s ability to generate strong cash flow despite lingering pandemic headwinds and to return that cash to shareholders. Our $60 fair value estimate is unchanged.

CEO Brian Roberts outlined three reasons for the drop-off in customer growth: economic conditions that have slowed consumer move rates, the reversal of pandemic-driven trends, and competitive pressures including fixed wireless. None of these is a revelation. Comcast again insisted that customer churn remains extremely low, but that the overall volume and its share of new customer connections have dropped sharply. Part of this weakness reflects the return of normal seasonal patterns—for the decade through 2019, the second quarter was the weakest quarter for broadband customer growth every year, with a 10-year average of 185,000 net additions in what was a much less mature business than it is today. With over 32 million broadband customers, very small changes in consumer activity can produce big swings in Comcast’s quarterly customer additions.

Roberts was also the latest cable executive to largely dismiss the fixed-wireless threat, stating that wireless network capacity is fundamentally limited. We agree. On its earnings call, T-Mobile declined to update the number of fixed-wireless customers it believes it can serve (7 million-8 million by the middle of this decade) despite adding 560,000 customers during the quarter. It said it won’t take on customers it can’t serve well. We also believe that T-Mobile and its peers won’t risk degrading the service provided to their core wireless phone customers to add a relatively small amount of broadband revenue.