Entertainment and telco giant Comcast (CMCSA -0.37%) is facing a new problem. Yes, the loss of cable TV customers is a sore spot, but cord-cutting is hardly a new headwind. The new headache is the underlying reason its cable TV business has been steadily shrinking since 2013.
The problem is broadband, or the high-speed internet connection that makes streaming video possible. Once a growth driver that offset TV customer losses, Comcast's broadband business growth is slowing to a crawl. Until this problem is fully resolved, Comcast's stock remains a tough one to own.
A brewing broadband headwind
It's not exactly disastrous, to be clear. Comcast's Xfinity-branded broadband service technically added customers during the third quarter of the year. The net addition of 14,000 high-speed internet subscribers, however, is only a tiny fraction of the 32.2 million consumer and business broadband customers the company currently serves. That total headcount hasn't meaningfully grown for a couple of quarters now, either.
Meanwhile, Comcast's cable television subscribers and phone customers continue to shrink at a pretty strong -- and now accelerating -- clip. The graphic below puts all of these trends in perspective.
Data source: Comcast Corp. Chart by author. Figures are in thousands.
It's the slowdown of Comcast's high-speed internet business that's most concerning here, though. Not only is it a hint that real competition is starting to materialize, but it also points to the sheer saturation of the nation's high-speed internet market.
To this end, Pew Research reports that 77% of U.S. homes are paying for broadband service as of early last year. That leaves another 23% of domestic homes without broadband. As Pew's data shows years of tepid growth -- even with millions of people locked at home in 2020 -- it's arguable that most of the remaining homes just aren't going to sign up.
It matters to Comcast and its shareholders simply because it's the company's single-biggest revenue driver, accounting for about a fifth of its total top line. Comcast's NBCUniversal arm technically drives more sales, but it's a business that encompasses movies, theme parks, and network television. Comcast's entire communications division, led by broadband, is also considerably more profitable than NBCUniversal is, at least for the time being.
Not here, not now
It's not necessarily the end of the world for current and would-be shareholders. Comcast actually managed to pump up its operating income last quarter -- and year to date -- thanks to price hikes for certain services. The company is also still earning far more than it's paying out in dividends, so the current yield of 3.4% is not only above the market's average payout but protected for the foreseeable future.
Sooner or later, though, Comcast is going to have to acknowledge the 800-pound gorilla in the room. That is, the most resilient of its three core telco businesses is peaking, perhaps as a prelude to a contraction like the other two began suffering years ago. NBCUniversal's streaming platform, Peacock -- along with the company's theme parks, wireless business, and U.K.'s Sky network -- are all interesting growth prospects, to be sure.
None of them, however, can fully replace broadband's waning contribution to the business. Until there's compelling clarity as to how Comcast is going to respond, investors may want to look elsewhere for new investment options.
