Wall Street has had an “overreaction” to Comcast’s pre-earnings concession last month that it will report as many as 150,000 lost pay TV customers in the third quarter.
So says Jeff Fan, analyst for Scotiabank, who said that since Comcast’s economics are now driven largely by its broadband business, its economics should remain “well intact.”
“Even with the announced losses of video subscribers, we believe Comcast offers investors very robust EBITDA and cash EBIT growth at a reasonable valuation,” Fan said in a note to investors today. “A majority of Comcast’s cable EBITDA growth is driven by its expanding internet subscriber base and the increase in broadband speeds demanded by customers, which we believe will ultimately drive ARPU growth. In combination with slowing programming costs, we believe the company can maintain approximately 5% EBITDA growth both in Q3/17 and into F18.”
Comcast is set to report its third-quarter earnings on Thursday.
Back on Sept. 7, Comcast residential products chief Matthew Strauss kicked up some investor anxiety when he said that the combination of downward secular trends in the video business and disruption caused by hurricane disasters would upend newfound momentum in Comcast’s video business. Comcast is among the few top pay TV operators able to grow its video base amid an acceleration of cord cutting over the last 18 months. The operator added 161,000 customers in 2016 and ended the first six months of 2017 up another 8,000 pay TV subscribers, despite record industry attrition in the second quarter.
"We estimate that of that 150K, roughly two-thirds is due to the competitive pressure created from linear and OTT providers,” Fan added.