Sometimes a single chart can be the best way to illustrate the information supporting an investment thesis. That is the impetus behind our chart-of-the-month series.
Each month we share a data point that helps tell the story behind one of the infrastructure-related industries we invest in. This month our focus is on cable broadband providers.
The chart below, taken from Altice USA’s fourth quarter 2020 earnings presentation, illustrates how the demand for faster data download speeds continues to increase, with their average customer download speed more than doubling since 2017.1 This chart speaks to both the insatiable consumer demand for faster broadband, as well as the essential nature of the service which, we believe, makes it a high quality and durable business model.
The Investment Case Explained
Here’s what we believe makes consumer demand for faster download speeds a compelling component to our broadband investment case: Cable companies are one of the few businesses in the world equipped to provide it.
Cable operators’ largest competitors in broadband services are telecom companies. But telecom networks were originally designed for voice calls and thus are ill-equipped to manage large data loads. Despite some significant innovation, upgrades to these legacy networks have been unable to keep pace with cable’s capacity. While fiber-to-the-home networks have been deployed in markets representing approximately one-third of U.S. homes, they remain expensive to deploy in areas with lower housing density.
For those interested in more, we explain the thesis in a prior blog post; but in short, we think cable providers’ superior broadband networks have created a competitive moat around their businesses. Furthermore, growing demand for faster speeds should continue to support earnings and free cash flow growth in even the most challenging economic backdrops.
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1 As of Reaves’ 13F filing on 12/31/20, Altice USA was held in some portfolios managed by Reaves Asset Management.
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