Comcast: Don't Expect a Big Stock Price Boost From the Switch to Full Digital Service

 |  Includes: CHTR, CMCSA, DISH, T, VZ
by: Trefis

Comcast (NASDAQ:CMCSA) is one of the major cable operators in the US and competes with Time Warner Cable (TWC) in the cable business segment, Dish Network (NASDAQ:DISH) and DirecTV (DTV) in the satellite pay-TV business, and with Verizon (NYSE:VZ) and AT&T (NYSE:T) in fiber-optic based services.

Although most of Comcast’s customers subscribe to digital cable services, a fraction of its subscriber base still uses its basic analog services. If Comcast were to turn fully digital by ceasing its analog services, this would have a negligible impact on Comcast’s stock.

Below we discuss a scenario where Comcast turns fully digital and how such a conversion will not have a major impact on Comcast’s stock price.

Digital Subscribers Will Increase 23% in 2010, but Long-Term Growth Rate Is Small

Comcast had about 17 million digital cable subscribers in 2009, and digital TV penetration of close to 75% within its own subscriber base.

In comparison, the analog subscriber count stood at close to 5.5 million in 2009, declining steadily over the years with customers opting for either digital cable service over analog from Comcast or switching over to other service providers.

If Comcast were to go fully digital and 100% of Comcast’s existing subscriber base were to subscribe to digital services, this would imply that our 2010 forecast for digital subscriber count would increase 23% from 18.2 million to 22.4 million.

However, we currently forecast that Comcast will have only about 23 million digital subscribers by the end of the Trefis forecast period. This is because Comcast’s digital subscriber base will suffer some churn as some Comcast customers switch to competing digital TV service providers like Dish Network, DirecTV, Verizon and AT&T.

Downward Bias for Comcast’s Average Digital Subscriber Fee

Comcast’s average analog cable pricing ranges from $19 for basic limited subscribers to $39 for expanded basic subscribers. The overall average pricing for analog Comcast subscribers in 2009 was close to $33.

If these customers were to subscribe to Comcast’s digital services for an average subscriber fee of about $54, this would bring additional cash flows for the company. However, we believe that analog subscribers would subscribe to lower priced digital packages, thereby shifting the overall digital subscriber fee downward by around 4% in 2010.

By modifying the forecast above, you will see that although the change in Comcast’s average digital subscriber fee may lead to additional cash flows for the company, it will have no significant impact on Comcast’s stock price.

Disclosure: No positions