"A Transformational Moment"

An update on Comcast and Charter

From “Convergence Calamity, Revisited” (November 2023):

“I’ve become more worried about incremental competitive intensity across the connectivity industries… I struggle to confidently state Charter and Comcast will continue to grow core broadband subs at a reasonable clip. In my mind, this suggests that the Cable investment thesis is no longer valid… For that reason, I have decided to sell Liberty Broadband and Comcast.”

Over the course of the past two years, the concerns discussed in that update have sustained or worsened, most notably on customer volumes: as shown below, Comcast and Charter saw their broadband base contract nearly 2% YoY in Q3 FY25 (at -1.7% and -1.5%, respectively); after accounting for passings growth, both are seeing material broadband penetration declines.

That is the primary reason why their stocks have continued to struggle, with each down more than 30% since November 2023, over a period where the S&P 500 has risen ~60%. At Comcast, the result is a stock that trades at a lower price today than it did a decade ago. At Charter, as a result of their levered buyback strategy, the company repurchased ~$78 billion of stock over the past nine years at an average price of ~$441 per share, ~2x higher than where it closed on Friday (~$220 per share). Needless to say, it has been a dreadful run for the owners of both companies, which is evident in their relative returns versus the index and shrinking EV/EBITDA multiples.

And yet, I still remain interested in the long-term potential of Comcast and Charter; if they can make the necessary adjustments to sustainably deliver the improvements I believe are attainable within their core Cable businesses, equity returns could be exceptional for these stocks in the years ahead.