While U.S. cable operators and their investors remain transfixed on penetration of the broadband market, and seizing market share, it is expansion of the overall market through household growth that is an important and overlooked part of the narrative.
So say the analysts of MoffetNathanson, who closely tie the Wall Street fortunes of Comcast, Charter Communications, Altice USA and other publicly traded U.S. cable companies to broadband growth.
U.S. cable stocks outperformed the S&P from the beginning of 2013 to the end of 2016 based on acceleration of growth in their broadband subscriber ranks. These stocks lagged, however, in 2017 through the first half of 2018, as cable broadband growth decelerated.
Cable stocks have rebounded to some degree as broadband growth has, “improbably” according to MoffettNathanson, reaccelerated.
“One cannot overestimate the importance of this development,” the firm said. “The overall growth rate of the residential broadband market slowed from about 3.7% in Q3 2016 to just 2.3% in Q1 2018, as new penetration gains slowed. Since then, overall market growth has reaccelerated to almost 3%. All of that acceleration can be attributed to acceleration in nw household formation.”
In the third quarter of 2018, the top seven U.S. cable operators, Comcast, Charter, Cox, Altice, Mediacom, WideOpenWest and Cable One, add over 728,000 subscribers, compared to just over 538,000 in the third quarter of 2017, according to Leichtman Research Group. Comparing the same timespan, the top telco operators lost slightly less wireline broadband (around 150,000 in Q3 2018 vs. 156,000 in Q3 2017). This suggests the acceleration of growth came from somewhere else besides poaching marketshare form the likes of AT&T and Verizon.
Unfortunately for cable executives and the investors also looking to better understand their business, household formation is “terribly frustrating” to track, MoffettNathanson conceded, with metrics often delayed and contradictory, and also varying based on region.
The metric is closely tied to unemployment—think millennials finally finding well-paying jobs, moving out of their parents’ homes, getting their own place and subscribing to cable broadband.