The pandemic-fueled broadband party is officially over, as Comcast Corp. netted no new internet additions in its latest quarter.
Comcast
CMCSA,
and its cable peers benefitted earlier in the COVID-19 crisis as people rushed to make sure they were equipped with internet connections that would allow them to work and study from home effectively, but the industry’s big subscriber gains have been slowing more recently.
Analysts didn’t have particularly robust expectations for Comcast’s broadband subscriber growth going into the second-quarter report, but they were largely predicting at least some growth. Instead, Comcast reported a net loss of 10,000 residential broadband customers and a net gain of 10,000 business broadband subscribers, which evened the net total out.
Shares of Comcast plunged 9.6% in morning trading Thursday and were on track for their largest single-day percentage decline since Dec. 1, 2008, when they fell 10.9%, according to Dow Jones Market Data.
The difference between Comcast’s flat broadband customer performance and the 84,000 net additions that Wells Fargo analyst Steven Cahall said was the consensus forecast “doesn’t necessarily move the… needle” on earnings per share or free-cash flow, but it’s still likely a source of concern on Wall Street, in part due to concerns about rising competition. Cable investors had already been uneasy about the encroachment of traditional wireless companies into the internet space with fiber and fixed-wireless-access offerings.
“We are not seeing fixed wireless have any discernible impact on our churn, but its early growth appears to be another contributor to our lower connect activity,” Chief Executive Brian Roberts said on the company’s earnings call. The company also competes against fiber in an “increasing percentage of our footprint.”
But the biggest factor impacting the broadband business is that people are moving homes less frequently than before, according to Roberts.
“As we discussed for some time now, there’s been a dramatic slowdown in moves across our footprint,” he said. “Our win share of new customer acquisition opportunities remains high but the slowdown in moves has resulted in fewer of these jump balls and this has had the largest impact on our gross connects.”
He also pointed to a “reversal of some pandemic trends,” as lower-income customers were more apt to add broadband earlier in the pandemic but now the company doesn’t have the same opportunities for gains. Further, there have been more “seasonal disconnects” than earlier in the pandemic.
MoffettNathanson analyst Craig Moffett seemed to agreed that Comcast’s “deceleration in broadband looks to us to be primarily a function of encroaching saturation, exacerbated by slow growth in new household formation, and not share loss to fiber and fixed wireless.”
Saturation is better than market share loss from a revenue perspective, according to Moffett, since it means that “pricing power isn’t jeopardized.”
Comcast’s Roberts was nonetheless upbeat about the company’s potential in broadband.
“Notwithstanding these industry and mostly macro related factors, we remain extremely confident,” he said. “We’ve spent decades investing and innovating to build a business that is well positioned to succeed in the environment we’re seeing and we certainly expect a return to residential broadband subscriber additions.”
Peer Charter Communications Inc.
CHTR,
is due to report its own results Friday morning. Its shares are down 6.7% Thursday, while shares of Altice USA Inc.
ATUS,
are off 4.9%.
“While Charter previously provided indications that overall broadband growth could be near zero with some elevated churn related to the ACP (Affordable Connectivity Program) program, we believe Comcast’s results increase the risk that overall broadband net adds for Charter could be negative,” Citi Research Michael Rollins wrote in a note to clients.
There’s a flip side to wireless inroads into the internet market, which is that cable companies simultaneously are trying to step on the toes of wireless incumbents. Comcast and Charter both have wireless businesses that leverage Verizon Communications Inc.’s
VZ,
network. The companies see long-term potential in bundles that tie wireless in with existing cable offerings.
Comcast indicated some progress on that strategy in its latest quarter, notching 317,000 net new wireless lines, above consensus expectations for 310,000.
“We’ve barely scratched the surface of the opportunity here at only 8% penetration of our residential broadband customers,” Roberts said.
The results marked “another strong quarter for internet/wireless bundling,” per Cahall.
The cable-segment trends on the whole overshadowed better-than-expected financial results, as Comcast came in ahead of overall estimates for revenue and earnings.
The company’s NBCUniversal segment drove the top-line beat, as Comcast brought in $9.45 billion in revenue for the unit, above the $8.99 billion that analysts tracked by FactSet had been anticipating. Comcast’s theme-park business increased revenue by 65%.
Roberts shared that domestic park attendance continues to exceed pre-pandemic levels.
