|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||53,000||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
|Entry||01/07/2008 11:36 PM|
Thanks for posting this idea because I have questions
1. Pricing: I live in Comcast country and my neighbors love to complain about their cable bills, which range from about $80 up to $200 for all the bells and whistles (HDTV, broadband, premium channels), when the annual 6% price increase is announced. How much pricing power do they have left?
2. Wireless - Verizon is setting up to one-up the triple play with the homerun play by having phone, broadband, cable and wireless. Do you think Comcast will eventually try to add wireless (take your pick of new build, acquisition, JV)?
3. Internet - Do you view this as a potential threat to broadcast TV?
4. Headquarters - How much have they spent on their new building in Philly?
5. On the non-EBITDA generating assets, what are they? Are we talking the sports network or sports teams?
6. Distributable Cash Flow - When you say it will trade a 7-8% yield on distributable cash flow, are you talking 2012's distributable cash flow over today's stock price?
|Entry||01/08/2008 10:29 AM|
|1. Pricing - As long as consumers want to watch proprietary sports programming, and more of it, the cost of which goes up meaningfully each year, they will have to accept price increases from their video providers. Note that satellite ARPU increases have been roughly 5-7% per year, not much different from cable. My guess is that average price per basic package continues to go up low single digits, with added features driving ARPU a bit higher than pricing increases.|
2. Wireless - There's no evidence yet that a quadruple play enhances the competitiveness of a provider relative to a triple play, which is probably one reason Comcast did not bid on the wireless spectrum the FCC is auctioning this month. If that evidence does materialize, Comcast would probably move toward adding a wireless product. I think this unlikely, however. Consumers don't want bundles. They want discounts. And Comcast does not need a wireless product to discount its product.
3. Internet-based video content is both an opportunity and a threat. It will require more bandwidth, which Comcast can charge for. There is no sign yet that internet content reduces demand for traditional TV content. If it does begin to sap demand for the traditional product, and Comcast is not able to charge as much for internet-delivered bandwidth as the traditional product, this could be a problem, though I would think it would happen slowly. All the video providers would face this problem (satellite in particular), however, and so long as they all remained rational, would find a way to get a good return for providing video to consumers. My guess, though, is that internet content ends up being more additive to demand for traditionally delivered content than reducing it.
4. Company headquarters - the corporate capex projection for 2007 was $250 million (vs $30 million 2006), and this included new hq and relocation costs.
5. It's pretty well laid out in the 10K. Wireless spectrum, legacy TWX stock, non-consolidated content assets.
|Entry||01/08/2008 10:30 AM|
|DTV was written up here a couple of weeks ago - it seems to be trading even a bit more cheaply, 5.7x 08 EBITDA, 5% FCF yield, almost no debt. Have you given any thought to how the two compare? As you mentioned, satellite is still generating net video adds, but on the other hand, cable is gaining in voice and HSD...|
|Entry||01/08/2008 01:13 PM|
|I suspect they are good investments here as well, though I haven't studied them as closely as cable. All things being equal, I would rather bet on Malone or Ergen than the Roberts to make me money, and Ergen before Malone. DISH, by the way, seems a bit cheaper to me than DTV, even if you pro forma the extra expenses they have to absorb now that SATS is no longer charging them at cost. But I haven't studied the valuation metrics on either DTV or DISH closely enough to be sure of that. Historically their EBITDA growth rates and returns on incremental capital have been materially higher than cable. I suspect that differential will narrow and perhaps disappear over the next few years, now that they have matured and since cable is still in the early stages of rolling out voice and the SME product.|
Malone claims satellite has a near term infrastructural advantage over cable because of capability to broadcast greater number of hi def channels. There may be some truth to that, but cable has tended to eliminate satellite product advantages over time and I doubt hi def will prove any different.
Triple play (from either cable or RBOCs) essentially amounts to bundling discounted products with the video product, which discounts satellite can't offer. Triple play from cable is still relatively recent, while RBOC entry is on the come. Though DTV results didn't show it Q3 07, the housing downturn will presumably pressure their results eventually, as they already have for DISH (see decline in net adds for Q3 07). All in, there are stiff headwinds facing satellite that may or may not have made their impact felt yet. Notably, CVC said on last cc that they thought satellite was losing share across their footprint (where there are now two strong triple play players, cable and VZ). Another overall consideration with satellite vs. cable is that it is probably a bit higher risk, since cable is diversified across 3 products whereas satellite just has video. But I wouldn't make too much of that difference.
|Entry||01/08/2008 02:01 PM|
|"Malone claims satellite has a near term infrastructural advantage over cable because of capability to broadcast greater number of hi def channels."|
Satellite always has an advantage over cable for broadcast (i.e. number of channels). Cable always has an advantage over satellite for narrowcast (local channels, VOD, interactive, etc.). If you know which will be more important to customers the next few years you know which provider will have a tailwind. It's gone back and forth a couple times.
|Entry||01/08/2008 03:08 PM|
|6.0x 08 EBITDA was total EV/Total EBITDA. |
Cable EBITDA 08 $12.93B (assumes 7% organic gwth and $290M for Insight)
Corp o/h $430M,
Content EBITDA of $357M
Total EBITDA of $12.86B.
- Other Assets $5B
- Premium for Content Assets $1.2B (assumes EV/EBITDA value is about 3x higher than cable business)
+ Net Debt at yearend (pro forma for Insight acq) $76.59B
Total EV = $76.59B
|Subject||Incorrect. Equity is 52, year|
|Entry||01/08/2008 11:41 PM|
|Incorrect. Equity is 52, yearend debt is 31. Subtract 5 for investments, 3.2 for content. Calculated this way, EV = 74.8.|
Given my assumption for 08 EBITDA for cable segment, and excl. content but fully allocating corp o/h to cable, 'cable EBITDA' = 12.6. Thus, EV/Cable EBITDA = 6.0x.
|Entry||01/10/2008 03:53 AM|
|how do you compare comcast to vmed|
different country of course; no competitive threat from rboc in terms of new video offering, but lots of competition from sat and broadband wholesalers
however that competition is nothing new, yet stock seems to have come in quite a bit
interesting/smart shareholder list (huff, branson, franklin, srm etc etc
i think the valuation and fcf numbers are better than comcast, and while uk housing prices are coming down, there was no subprime/overbuilding boom in the uk, like the us
curious as to your thoughts; thanx
|Subject||I've only looked at cable outs|
|Entry||01/11/2008 12:43 PM|
|I've only looked at cable outside the US superficially in the past and never proceeded because the competitive and regulatory environment seemed so different. |
But I'm curious as to your view of FCF at VMED. On just a quick look, VMED has 4.3x Debt/EBITDA and at current price of $13.75, VMED looks to me about 6-6.5x EV/EBITDA. I see them producing about GBP 225-250 fcf in 08, which comes to about a 10% fcf yield, if I'm doing everything correctly. That does seem cheap - I just don't have a good feel for the EBITDA growth or future capex requirements there. Also, that fcf estimate was burdened by no taxes, which are 28% in UK and might mean current fcf is higher than a rate normalized for taxes.
|Entry||01/15/2008 12:08 AM|
|in general you are correct; my fcf yield is higher; but in the ball park with yours. on ebitda growth; its supposed to grow as they add internet and phone to customers (same triple or quadruple play concept as in the usa), also theres cost and cap ex savings due to the merger a while ago w telewest. however, honestly, thus far ebitda really hasnt grown that much, but like comcast in the future it is supposed too|
i think future cap ex should come down as theyve upgraded the plant etc etc
also there are tons of nol's; so you dont need to worry about taxes in this lifetime
|Subject||Two points to consider about t|
|Entry||01/16/2008 09:39 AM|
|Two points to consider about the RBOCs. As to their cap spend, the fibre network VZ installs lowers maintenance costs across their entire network, including subs who don't take video or voice from them. They include in their ROIC calculation those savings, as well as the 'saved' EBITDA from reduced attrition on their existing voice sub base.|
Also, correct me if I'm wrong, but I believe the VZ and T valuations you reference seem to be of the entire enterprises, including their wireless businesses, which grow more rapidly and are less capital intensive at this point, and therefore deserve higher multiples than the legacy wireline businesses. When I used comps to back out the value of the wireless pieces a few weeks ago (adjusting pro rata for VOD's ownership of VZ wireless), I got the wireline stubs trading around 4.5-5.5x EBITDA.
|Subject||Re: FIOS costs|
|Entry||01/16/2008 12:38 PM|
|"...assuming that for $1500 per sub, VZ gets 20% penetration, they are effectively creating subs at $7,500 per sub ($1,500/.20) compared to cable's ~$3,000 per sub (or lower) valuation,"|
These numbers look way out of whack. VZ quotes gross capex of about $1000 per home passed plus 700 per connection. Some of the 1000 replaces planned capex for the existing copper plant, so net capex is more like 750 per home passed. Furthermore, video penetration may only be 20-25% but when you include data subscribers and so forth penetration rises to 35-40%. Based on 39% total penetration VZ calculates net capex of $2500 per sub. Add a few hundred for marketing and you're still below $3000 per sub.
It's not at all clear to me cable has a big incumbency advantage. Most people still get voice from their telco and video from their cable MSO. People moving to triple play will either have to switch voice over to their cable MSO or switch video to their telco. It's not obvious to me people will favor one over the other, if anything telcos seem attract less customer hate than MSOs. Cable does have a head start, so maybe the market stabilizes around 60/40 instead of 50/50, but I'd be really surprised to see it break 80/20 long term.
|Subject||Re: FIOS costs|
|Entry||01/18/2008 03:11 PM|
|"Cable also includes high penetration of data, so assuming data penetration per video sub is the same..."|
It's NOT the same. Data penetration per video sub exceeds 100% for FIOS because VZ gets lots of people who buy data and not video.
Defining "sub" as a customer who gets one or more services, VZ penetration rate is 35-40%. They use 39% in their forecasts, yielding a $2500 investment per sub. Your 20% penetration number is simply not correct.
"If you do $1,000 per home + 700 per connection, plus at least 300 in marketing spend (they spent over 500 in Keller TX) = 2,000 per sub on 20% penetration is 10,000 per sub."
Even if your 20% penetration was correct, your math is still wrong. You do not divide the 700 per connection and 300 marketing spend by 20%. They're already in dollars per sub. Only your $1000 per home passed number should be divided by your 20% penetration rate.
Your $7500-10000 per sub cost would only be correct if VZ penetration was around 10% vs. the 39% they claim.
|Subject||re doggy: Fios|
|Entry||01/18/2008 05:26 PM|
|700 per sub including marketing spend makes no sense (they spend 500 per sub in marketing keller, their big success story). the set top boxes alone are $300, then you have materials, labor costs, modems, etc. The $700 claim seems way way off base. Their claim that they plan on getting 39% penetration of homes passed also seems extremely aggressive to me. When I define penetration it is video sub per video home passed. Also, how can you get more than 100% penetration of data per Fios video sub passed? I know what the company is "claiming" but my issue is I don't simply don't believe these claims! (and I don't think the market does either given the ex-wireless valuations according to thistle). |
|Subject||re doggy: fios|
|Entry||01/18/2008 05:36 PM|
|To clarify, I'm looking at the cost per gained Video sub, not for all their services (ie people who only take Fios data). My argument is that the cost to win a video sub only is much higher and my 20% number is what I believe are video subs divided by Fios homes passed. It seems that the cost to acquire a video sub is much higher vs. what you can already get by going long cable. Also, when you consider the EBITDA per sub, it is higher for cable because VZ's EBITDA margins at higher penetration rates are closer to 30%-35% as the programming is on less favorable terms. I also believe the EBITDA-maintenance capex per cable sub is higher vs. what VZ can get.|
|Subject||Re: FIOS costs|
|Entry||01/22/2008 10:28 PM|
|"I'm looking at the cost per gained Video sub, not for all their services (ie people who only take Fios data)."|
I understand this, I'm just saying it's wrong. What magical properties does a video-only customer posess which makes him worthy of being called a "sub" that a data-only customer lacks? Both produce monthly revenue. Video ARPU is higher but half that money goes to content providers. Data revenue stays "in-house".
If VZ passes 100,000 homes in a town, gets 40k data subs of which half also sign up for video, why do you only count the 20k with video and ignore the other 20k? If I flipped your method around and divided Comcast's EV by data customers, excluding anyone who did not buy data, I'd probably get a similar $7500 "per data sub" valuation. What's the point? As for other issues:
1. Basic settops cost under $100 in quantity.
2. VZ's capex doesn't include settops, anyway. STBs are leased to the customer, with their own ROI calculation.
3. You can't extrapolate Keller marketing spend. It was a brand new concept in a town too small to achieve marketing scale.
4. I read VZ actual spend was coming in more like 850 per home passed and 900 per connection. This doesn't materially change the "per sub" results if you do the math right.
Only time will tell if FIOS is a good investment. If VZ hits 39% penetration they'll do fine, even if some of those subs don't happen to get video. There's nothing "special" about video.
|Entry||01/23/2008 12:17 AM|
|Instead of going back and forth ad infinitum on this, you might want to take a look at a recent Sanford Bernstein report. What VZ spends per sub is higher vs. you said (around $1,500, according to Company published data and re-iterated in the report) and the report does a good analysis of looking at true costs per sub, looking at video only subs (and video vs. data) and the ROI over the life of the FiOs project. The conclusion is that the cost to build is at least $4,000-$5,000 per sub (or greater depending if you look at video only subs) under aggressive assumptions (basically Verizon's) and that even under the most optimistic case, enjoys returns below VZ's cost of capital. Also, most of CMCSA's data subs also take video, so you really have to look at the entire bundle.|