Comcast's broadband worth more than all of TWC

The cable operator's investments in broadband networks have certainly paid off.

By Trefis Jan 26, 2012 2:10PM
Image: Global communication (© Maciej Frolow/Brand X/Getty Images) Comcast (CMCSA) and Time Warner Cable (TWC) are the two largest cable operators in the U.S., providing broadband, pay-TV and VoIP (voice over Internet protocol) services. Both companies have suffered pay-TV subscriber losses as competitors such as DirecTV (DTV), AT&T (T) and Verizon (VZ) have been expanding their pay-TV subscriber bases.

To offset these losses, the cable companies have resorted to investment in their broadband networks to improve speeds and increase their high-margin broadband subscriber base.

That has certainly paid off for Comcast -- it's interesting to note that Comcast is not only worth much more than Time Warner Cable (which is to be expected given its much higher subscriber count), but according to our estimates, Comcast's broadband internet business is now worth more than all of Time Warner Cable.

Comcast stock break-up

We estimate Comcast's value to be around $72.5 billion and further estimate that its broadband business constitutes about 35% of this estimated value. The 35% figure comes from estimated cash flows contributed by the broadband business and the expected growth in these cash flows. This implies that Comcast's broadband business is worth $25 billion. On the other hand, we estimate that TWC's total value is around $21 billion (compared to its market cap of about $22 billion), implying that Comcast's broadband business alone is worth more than Time Warner Cable.

If we just compare our estimates for the value of each broadband division, Comcast's broadband business is worth almost 2.9 times as much as Time Warner Cable's business.

A quick look at fundamental cost drivers suggests that capital expenditures (as percentage of sales) as well as operating margins are more or less similar for the two. Revenue drivers suggest that while the average fee per subscriber is similar for the two companies, Comcast's broadband market share is almost twice that of Time Warner Cable. Thus, intuitively one might think that Comcast's broadband business should be worth twice as much as Time Warner Cable's. However, Time Warner Cable's higher leverage (debt relative to cash flows and/or equity) makes the stock more volatile and sensitive to changes in fundamental value drivers, thus pulling down its value.

While comparing Comcast's broadband division to Time Warner's is certainly not an apples-to-apples comparison given the difference in scale, it's interesting to see just how valuable these companies' broadband networks have become.

Our price estimate for Comcast stands at $26.60, implying a slight premium to the current market price. See our complete analysis for Comcast.



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