2015/6/18 0:14:36
Source: Web
Views:1141
Comments:0
Comcast is
the largest U.S. cable operator, providing consumers and businesses with
pay-TV, high-speed internet and digital voice (VoIP) services, usually in
triple-play packages. The company has around 22.375 million pay-TV subscribers
and 22.369 million high-speed internet subscribers as of March 31,
2015. Additionally, the company also operates the NBCUniversal, which owns
the NBC and Telemundo broadcast networks, cable channels such as USA
Network, E!, CNBC, MSNBC, Syfy andBravo, film studio Universal
Studios and theme park business Universal Parks and Resorts.
In this article, we make a case for Comcast acquiring Sprint to
add wireless services to its business for a quadruple-play bundle. This
could help the company compete effectively with the proposed AT&T DirecTV
combination in a market where the boundaries between wireless and
cable/online video are
blurring. Our price target
for Comcast stands at $62, implying a premium of around 10% to the
market.
See our complete analysis for Comcast
Comcast’s
Performance Update
The high-speed Internet business has performed exceedingly well
for Comcast due to rising demand for faster Internet and a corresponding
decline in DSL Internet connections. The segment’s subscriber base increased
from 13 million subscribers in 2007 to almost 22 million by the end of
2014. Comcast is also operating in the stagnant pay-TV industry, which
has lost nearly 3
million subscribers in the last two years. This can be
attributed to a combination of factors such as market saturation, fierce
competition and the rise of alternative video platforms such as Netflix. However, Comcast
has managed to slow the pace of subscriber losses in recent quarters, primarily
due to its triple play bundling, which combines pay-TV, high speed internet and
voice into one package. This bundling helps reduce subscription fees for
subscribers as it saves on infrastructure costs and leads to operational
efficiencies and economies of scale.
The Sprint
Opportunity
Notwithstanding its recent strong performance in the pay-TV and
broadband market, Comcast will be at a disadvantage if the proposed
AT&T-DirecTV merger goes through. The combined entity will be
able to offer four bundled services (mobile,
fixed-line, broadband and TV) compared to three offered by Comcast. Comcast
could respond to this competition by reducing its subscription fees, but
this seems highly unlikely considering that its average monthly fee per subscriber
has not declined in the last eight years.
Another option
for the cable major could be entering the wireless industry and upgrading its
triple-play offerings to quadruple-play bundles. With T-Mobile and Dish Network
considering a merger, Comcast could look into entering a partnership with
Sprint, or even buying out the wireless carrier. In terms of market cap,
Comcast is over 7.5x more valuable than Sprint. Although the carrier has
struggled to attract wireless subscribers in recent years, it is showing signs
of improvement – both in terms of overall subscriber gains andcountry-wide network quality.
In a bid to
further improve its network, Sprint recently announced that it has
received approval from its majority shareholder SoftBank for its new network
modernization plan. The plan, which will involve improving the carrier’s
coverage and network speed, will likely require billions in capital
expenditures as well as potential spectrum purchases. However, this costly plan
will put an even greater strain on the company’s financial
position. Sprint’s overall revenues declined almost 7% year-over-year
in Q4 FY14 as users shifted to discounted service plans. In terms of
income, the carrier reported a net loss of $224 million, or 6 cents per
share compared to a loss of 4 cents per share in the prior year
quarter. It currently has net debt of over $28 billion and has not
reported positive free cash flows in the last two years. It reported negative
$914 million in free cash flow in the quarter ending March
2015. With SoftBank’s financial backing and the possibility of
efficient bundling of different services with Comcast, Sprint may be able to
turn around its fortunes earlier than expected.
(Credit: Web)