1、 Please refer to page 20 for important disclosures and analyst certification,or on our website June 2019 United States EQUITIES Companies mentioned Company Ticker Rec TP Last price P/FCF 20e Altice USA ATUS OP$30$23.85 8.8x Charter CHTR N$390$395.21 13.8x Comcast CMCSA OP$50$43.25 12.2x WideOpenWest
2、 WOW N$8.50$7.34 NM Source:Company data,Macquarie Capital(USA),June 2019.Prices as on 18 June 2019.2019e revenue and EBITDA growth and EPS changes Revenue EBITDA Old New Growth Growth EPS EPS Altice 3.0%3.9%$0.32$0.58 Charter 4.5%2.9%$5.86$6.24 Comcast*17.6%16.2%$2.99$3.00 WideOpenWest 0.50%6.10%$1.
3、16$1.16 Source:Company data,Macquarie Capital(USA),June 2019,*19e Comcast estimates incorporate Sky Analysts Macquarie Capital(USA)Inc.Tim Nollen +1 212 231 0635 Jordan Boretz +1 212 231 0905 US cable operators Connectivity and the need for speed Key points Pay TV losses to OTT translate to data sub
4、 gains for cable operators as users demand ever-faster speeds and data packages.Cable companies on balance can continue to see steady,albeit modest growth.We have transferred coverage of ATUS(O/P,TP$30),CHTR(N,raising TP to$390),CMCSA(O/P,TP$50),and WOW(N,reducing TP to$8.50).The need for speed Broa
5、dband internet is an essential and increasingly valuable service,with household penetration still increasing,and pricing rising with ever-greater demands for speed.We model cable data sub growth continuing to rise at a 4-5%clip the next few years,until it reaches 90%household penetration.And while t
6、here will always be pay TV bundles,the explosion of direct-to-consumer OTT services will likely lead to accelerated cord-cutting.We model video sub losses accelerating from-2%on average in 2018 to-2.5%to-4%by 2023;this remains an investment risk.The trick for the cable operators is thus to ensure th
7、at data sub additions offset video sub losses,and that ARPU gained from both sets of subscribers continues to rise.We expect this to be the case:we model 2019e net data/video sub growth of+781k for Comcast,+829k for Charter,+7k for Altice,and flat for WOW,and the net sub figures and revenue growth t
8、o remain positive for the next 5 years.And we expect consumer demand for faster speeds to support steady data ARPU increases of 5.5%this year,and similar for the forecast period.We do not foresee near-term threats from 5G given its propagation and cost restrictions,though this certainly bears monito
9、ring.And good news for the cable companies too is they are winding down from capex builds in DOCSIS 3.1 and new digital platforms,and are gaining new revenue streams from mobile that over time should offset voice sub declines.Comcast:Outperform,$50 target price We view Comcast as a best-in-class ope
10、rator,and we like the Sky acquisition for its solid growth and diversification,as well as unappreciated synergies including the Sky Now OTT platform to support NBCUs coming DTC service,Skys AdSmart addressable TV ad tech,and content distribution opportunities across both.Valuation at 12.2x 2020E P/F
11、CF leaves room for upside;we see fair value at$50.Altice:Outperform,$30 target price We appreciate Altices relative market strengths in NY as well as underpenetrated rural areas,and applaud its margin expansion efforts.New top-line growth is set to begin this summer with the Sprint MVNO mobile rollo
12、ut.ATUS at 8.8x 2020e P/FCF is at 300-400bps discount to CMCSA and CHTR,supporting our buy case.Charter:Neutral,raise target price from$375 to$390 We like Charters position and appreciate the exit this year from integration and investment costs,but we believe this is priced in at a premium 13.9x 202
13、0e P/FCF.Wide Open West:Neutral,reduce target price from$10 to$8.50 We see value in WOWs overbuilder strategy and await FCF inflection this year.Macquarie Research US cable operators 19 June 2019 2 The need for speed Connectivity is now more important than ever before as the internet drives accelera
14、ting information and media consumption.We revisit cable industry trends as we have transferred coverage of CMCSA,CHTR,ATUS and WOW.We make no changes to recommendations,but we are tweaking estimates to reflect anticipated cord cutting trends,ad seasonality,and recent management commentary.Our thesis
15、 on the 4 cable operators we cover is that high-speed internet is and will increasingly be a valuable and essential service,with household penetration still increasing along with pricing,for ever-greater demands for speed.And while there will always be pay TV bundles,the explosion of direct-to-consu
16、mer OTT services and the user-friendliness they offer will likely lead to accelerated cord-cutting.The trick for the cable operators is thus to ensure that for the foreseeable future,high-speed data sub adds offset video sub losses,and the ARPU gained from both sets of subscribers continues to rise.
17、We expect this to be the case.Cables video revenue growth has stagnated over the past 1-2 years(turning negative at Comcast in Q118,fluctuating around zero at Altice,and slowing at Charter to only 1-2%growth).But high-speed data revenue growth has remained robustup 9%at Comcast,+12%at Altice and+8%a
18、t Charter in 2018and we expect this to remain at similar levels for the next few years.On a combined net basis,we model total video and high-speed data subs up 2.6%in 2019e.These numbers remain positive on a net basis in our model,albeit slowing,through 2023e,as high-speed data adds continue to offs
19、et video declines.Fig 1 Average cable operator high-speed data and video revenue and sub trends:data offsets video Source:Company data,Macquarie Capital(USA),June 2019 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000$20,000$25,000$30,000$35,000$40,000$45,000$50,000$55,000
20、201720182019E2020E2021E2022E2023E#m$mVideo SubsHSI SubsVideo RevenueHSI RevenueMacquarie Research US cable operators 19 June 2019 3 Fig 2 Average cable operator revenue growth,EBITDA,and margins Source:Company data,Macquarie Capital(USA),June 2019 In addition,while were not saying its ok for video s
21、ubs to decline,we do note the margin profile improves with less expensive video in the mix.For Comcast alone,the split between video revenue and high-speed data revenue has fallen from 52%/24%of the total in 2011 to 41%/31%in 2018,and we expect the two lines to meet in 2020.And as the high cost of p
22、ay TV content becomes a smaller component of the mix,the drag on margins should likewise ease.Fig 3 Comcast segment revenue:Broadband gains video losses Source:Company data,Macquarie Capital(USA),June 2019 This is important as consumer demand for high-speed internet connections is going to rise inex
23、orably.And as more consumers drop pay TV for OTT services,their demand for data access and speeds will rise.32.5%33.0%33.5%34.0%34.5%35.0%35.5%36.0%$0$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000$50,0002016201720182019E2020E$mAdj.EBITDARevenueMarginVideo52%Broadband24%Phone10%Ad5%Bu
24、siness Services5%Other4%2011Video41%Broadband31%Phone7%Ad5%Business Services13%Other3%2018Macquarie Research US cable operators 19 June 2019 4 Fig 4 Summary table of key metrics across our cable coverage Source:Company data,Macquarie Capital(USA),June 2019 Video Cord-cutting is here to stay,and may
25、well get worse We expect pay TV cord-cutting to once again pick up,with Netflix,Amazon,Hulu,and YouTube now household and handheld names,and with well-funded direct-to-consumer OTT services from Disney,NBCU and Warner Media all coming to market in the next 6-12 months.In 2018,net losses for traditio
26、nal pay TV across the industry rose sharply,reaching 3 million.But traditional cable providers Altice,Charter,and Comcast accounted for 700k of those total net losses,while other providers(AT&T mainly DirecTV,Dish and Verizon)accounted for 1.2m,920k,and 168k,respectively.Fig 5 Cable video net losses
27、 vs satellite/telecom video net losses Source:Company data,Macquarie Capital(USA),June 2019;Telecom and Satellite net loss estimates from FactSet consensus 20182019E2020E2021E2022E2023EVideo SubsAltice(2.9%)(2.5%)(3.0%)(3.3%)(3.6%)(3.9%)Charter(1.4%)(1.9%)(2.0%)(2.1%)(2.1%)(2.2%)Comcast(1.7%)(2.1%)(
28、2.1%)(2.4%)(2.8%)(3.1%)WOW(6.1%)(8.7%)(8.0%)(8.3%)(9.5%)(10.9%)HSD SubsAltice1.8%2.2%2.4%2.6%2.7%2.9%Charter5.3%5.4%4.6%4.3%4.1%3.9%Comcast5.2%4.5%4.1%3.6%3.2%2.7%WOW3.7%4.8%4.3%3.9%3.0%2.5%Revenue GrowthAltice2.6%3.0%3.5%2.8%2.7%2.5%Charter4.9%4.5%4.9%4.2%4.5%3.6%Comcast11.1%17.6%5.2%2.8%4.7%2.0%WO
29、W(2.7%)0.5%0.9%1.6%1.8%1.8%EBITDA GrowthAltice3.9%3.9%4.9%4.1%3.2%3.0%Charter5.0%2.9%8.3%7.1%8.6%6.5%Comcast7.9%16.2%5.7%4.7%6.1%3.5%WOW(7.7%)6.1%3.2%4.7%1.9%1.2%EBITDA MarginAltice43.0%43.5%43.9%44.5%45.0%45.3%Charter36.8%36.8%36.2%37.4%38.4%39.9%Comcast32.9%31.9%31.5%31.7%32.2%32.7%WOW37.4%35.5%37
30、.5%38.4%39.5%39.6%(582)(752)(891)(911)(1,505)(1,680)(2,274)(2,979)(4,500)(4,000)(3,500)(3,000)(2,500)(2,000)(1,500)(1,000)(500)-2016201720182019E#kCable Video Net AddsOther Video Net AddsMacquarie Research US cable operators 19 June 2019 5 Cable seems powerless to stop the attrition in video subscri
31、ptions,and many cable players now view the long-term secular decline of video as inevitable.The cord-cutting trend has forced cable to confront the question of sub quantity vs quality:quality reigns supreme per the industry.Comcast has spoken publicly of its sole focus on acquiring profitable subs a
32、nd that the company will not make use of promotions or chase unprofitable customer relationships.Additionally,cable players have adapted their offerings to combat the loss of pay TV subs.New innovative,proprietary hardware and software platforms such as Comcasts X1 and Altices Altice One aggregate c
33、ontent and OTT apps.The platforms,which allow subscribers to access Netflix,YouTube,Hulu,and more,in addition to live TV and their DVR content,are designed to drive more fluid user interaction and,in turn,lower churn from the internet subscriptionand,just possibly,retention or even addition of a pay
34、 TV bundle.Looking ahead,video net losses are poised to continue for the long term and we believe that losses will accelerate as cord-cutting picks up.Across Altice,Charter,and Comcast,we expect 2Q video net losses of 266k,which would be down compared with the Q1 drop of 284k.But for 2019 and beyond
35、,we expect the average 2%decline in 2018 to worsen to-2.2%in 2019,and to-2.5%to-4%in subsequent years.These figures could very well get worse in an eventual consumer slowdown,which would have interesting bearing on how investors look at cable stocks.Historically,these have been defensive names,with
36、HH penetration of cable TV consistently rising through previous down cycles.By contrast,while broadband subs will likely remain stable,we would expect video subs to drop even further in a recession,as consumers look to all the video services they are currently subscribing to and decide to make some
37、cutsit may well be the more expensive pay TV bundle that goes before Netflix or Disney+.There is however an argument to be made for the value in pay TV bundles.Clearly,a monthly broadband fee(itself often higher stand-alone than as part of a broadband/pay TV bundle)plus several OTT services quickly
38、adds up to be more than a pay TV bundle,and virtual MVPDs dont save consumers much.We do think there is some degree of resiliency to pay TV bundles,especially for households demanding sports,where rights happen to be spread across multiple networks(for ex.NFL on broadcast and ESPN,NBA on ESPN and TN
39、T,MLB on ESPN and TBS,NHL on NBC,and regional sports on various networks).This is why we dont expect video subs to completely collapse.But the wealth of content on so many OTT services will probably entice viewers elsewhere,and continue to drag the pay TV sub figures down further.Cable players are h
40、owever still able to lean on low-single-digit service price increases for revenue growth.Video ARPU growth averaged 2.7%across the 4 cable companies under coverage in 2018,and Comcast just put another price increase through in Q119,while Sky raised video rates in April.We model 2019 video ARPU up 1.
41、6%.This is in response to ongoing price increases from the TV network groups,which cable operators have been able to pass on in part to consumers.The cost of live sports,and the bargaining leverage that still gives several network groups(CBS,Fox,NBC,Disney ESPN,AT&T TBS/TNT)even in an age of operato
42、r consolidation,means consumers ultimately have to pay for it.Fig 6 Cable operator average video/high-speed-data ARPU and subscriber growth Source:Company data,Macquarie Capital(USA),June 2019(4.0%)(2.0%)-%2.0%4.0%6.0%8.0%10.0%201720182019E2020E2021E2022E2023EVideo ARPUHSI ARPUVideo SubsHSI SubsMacq
43、uarie Research US cable operators 19 June 2019 6 High Speed Internet(HSI)The basis of our connected world Broadband penetration within the US current sits at 82%and recent commentary by cable company management suggests the penetration rate could reach low-90%by 2021/2022.Along with penetration,aver
44、age internet speeds have been rising YoY.These trends correlate with increased media and entertainment usage,as consumers are demanding increasingly faster speeds as their use of content streaming including OTT streaming and video gaming.According to Vox,US internet speeds rose over 35%in 2018.The F
45、CCs 2018 broadband report shows US broadband users now taking an average 72Mbps.50%of Altices gross adds are taking 300Mbps+with 80%of total subs taking 100Mbps+.Charter also notes that 80%of its internet subs are taking 100Mbps+with 30%taking 300Mbps+.Likewise,Comcast has cited heightened demand fo
46、r speed as its average home now uses over 200GB of data per month.In response to higher demand for speed,cable has invested heavily in legacy network upgrades.DOCSIS 3.1 upgrades are being rolled out across the vast majority of cable footprint.The standard will eventually allow for up to 10Gbps down
47、load speeds and 1Gbps upload speeds,according to Netgear.Charter says its upgrades were 95%rolled out in late 2018,while Comcasts upgrades were finished in the same time frame.Meanwhile,Altice has plans to finish its Optimum upgrades and launch gigabit service by the end of 2019.So capex investments
48、 are now largely behind for the 3 big cable companies.Fig 7 Summary of internet providers and their offered speeds Source:Company data,Macquarie Capital(USA),June 2019 Faster speeds are translating to higher ARPU and just as importantly,should contribute to higher EBITDA margins for cable operators.
49、High-speed packages fetch a premium price,while costs only marginally rise as service is provided over existing/legacy infrastructurethis operating leverage inherent in quality infrastructure speaks to the focus these companies place on these investments.ServiceProviderDownload SpeedsUpload SpeedsAl
50、tice400Mbps40MbpsComcast1Gbps35MbpsCharter940Mbps35MbpsVerizon FIOS940Mbps880MbpsATT Uverse1Gbps940MbpsFixed WirelessVerizon 5G Home300Mbps250MbpsAT&T25.5Mbps11.5MbpsVerizon36Mbps15MbpsT-Mobile23.5Mbps15MbpsSprint21Mbps,36Mbps in larger cities8Mbps*Speeds offered/advertised to majority of customers*
