In some countries, Elon Musk’s satellite-based internet service provider (ISP), Starlink, has been sharply cutting prices. For example, in March the company reduced its monthly subscription fee to just 50 euros in Holland. Dutch customers also have to pay an initial fee of 225 euros or $221. Still, it’s certainly a great deal overall, especially because subscribers get unlimited data, and one longtime Starlink U.S. user earlier this year called it “stable, speedy, and stress-free.” As a result, there may be some internet and telecom stocks to sell.
In America, the service currently costs $120 per month plus a one-time $499 fee. But I do expect the monthly charge to drop to around $70 per month in the not-too-distant future as the company’s user base surges. Making the deal even more attractive, the firm recently unveiled the Starlink Mini. For a one-time charge of $599 plus an extra $30 per month, Starlink subscribers can access the internet anywhere in America with this laptop-size device. In light of the attractiveness of Starlink’s services, I believe that the existing ISPs will take a big hit within the next year or two. Here are three stocks to sell or short to prepare for that situation.
Comcast (CMCSA)
Of Comcast’s (NASDAQ:CMCSA) $30 billion of revenue in the first quarter, $6.59 billion was generated by its domestic residential broadband customers. That works out to 22% of its total sales. Also noteworthy is that the company increased its average revenue per broadband user by more than 4% in Q1 versus the same period a year earlier. Further, it lost a net total of 94,000 broadband subscribers in Q1. As Starlink becomes more popular, Comcast will not be able to continue raising its broadband internet prices without losing a great deal more of its customers.
Meanwhile, of course, another key component of Comcast’s business – its cable TV offerings – is becoming much less popular in the U.S. That’s because the cord-cutting phenomenon is continuing to become more prevalent. In Q1, for example, the company shed a rather large net total of 4845,000 video subscribers.
Investors may be starting to see the writing on the wall for CMCSA stock as the shares sunk 19% between Feb. 1 and June 27.
Charter Communications (CHTR)
Charter (NYSE:CHTR) obtains the lion’s share of its revenue from its ISP business and its cable business. Specifically, of its total Q1 revenue of $13.7 billion, $5.8 billion came from its ISP offerings, and $3.9 billion was derived from its video business.
Last quarter, Charter’s residential ISP user base was flat versus the same period a year earlier, while the user base of its residential video business retreated by 8% year-over-year to 13.1 million. If Charter’s ISP business, like its video unit, starts to shrink tremendously, the company’s overall top and bottom lines will begin to tumble.
Already last quarter, its free cash flow sank to $358 million from $664 million. Additionally, the firm’s net cash flows from operating activities declined to $3.2 billion from $3.3 billion in Q1 of 2023.
Like Comcast, Charter’s shares have tumbled so far this year, indicating that major investors are jumping off this ship that will sink before too long. Specifically, as of June 27, the shares had dropped 24% in 2024.
AT&T (T)
AT&T (NYSE:T) is much less dependent on broadband internet revenue than either Comcast or Charter. Still, in Q1, AT&T generated $2.7 billion of its total $30 billion of revenue from its broadband ISP business. Moreover, the broadband business generates the vast majority of the sales of its Consumer Wireline unit, and the latter unit generated an EBITDA of $1.1 billion in Q1.
AT&T’s total EBITDA, excluding certain items, was $11 billion last quarter. So if its internet unit loses a large amount of its subscribers, causing the Consumer Wireline unit to generate an adjusted EBITDA loss, the entire company’s adjusted EBITDA could easily drop by 15%. Such a scenario, of course, would be quite negative for T stock.
And on the wireless front, AT&T is facing increased competition from cable companies. In fact, in April, investment bank TD Cowen estimated that the cable providers could eventually woo roughly 7.5 million more consumers to join their wireless networks.
Shorting T stock, however, could be difficult because anyone who shorts the shares will have to pay its hefty 5.9% dividend yield. It is, however, worth considering among stocks to sell.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
