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2 Internet Service Stocks in Focus as Competition Heats Up
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2 Internet Service Stocks in Focus as Competition Heats Up

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Wireless carriers and traditional broadband providers are having a go at each other’s turfs. Dynamics in the space are changing fast, and consumers are always looking for plans that offer value. Who wins, in the end, is anybody’s guess.

Undoubtedly, cable companies and wireless carriers are vying for one other’s market share. This week, the biggest private broadband provider in the U.S., Cox Communications, forayed into the mobile space with the pilot introduction of Cox Mobile. The latest step is expected to intensify competition in the cell phone market.  The companies that could be impacted due to the growing rivalry include Comcast (NASDAQ: CMCSA) and T-Mobile (NASDAQ: TMUS), among other names.

Cox’s new mobile phone service starts at a price of only $15.00 for a cell phone plan. This new mobile phone service will initially be available in three markets and later be expanded to other markets on a rolling basis. Cox already caters to about seven million customers in 18 states, and customers of its new offering will be able to use its internet at home and via its over four million wifi hotspots.

The dynamic, in turn, is a way for wireless carriers such as T-Mobile to utilize excess capacity to tap new users that were earlier using broadband.

Comcast

Comcast is the biggest cable operator in the U.S. and is a major name in movie production and entertainment globally.

Last month, Comcast reported higher second-quarter revenue on the back of gains in Movie Studios and Theme Parks, but its overall subscriber numbers remained flat. This was the first time in about two decades that Comcast failed to add net-new broadband users. Charter, too, reported a decline in its user base recently.

What is Comcast’s Stock Price Forecast for 2022?

Wall Street has a Moderate Buy consensus rating on the stock. The average Comcast price target is $46.83, which implies 29.1% upside potential. That’s after a 28% slide in share price so far in 2022.

Comcast’s user base trend underscores the heated competition from wireless names such as T-Mobile and Verizon Communications, which have added millions of users to their services.

T-Mobile

The Washington-based T-Mobile is a wireless service provider catering to the branded prepaid, postpaid, and wholesale markets.

Shares of T-Mobile have risen ~25% so far in 2022, and investors could see further gains given the company’s recent second-quarter performance. In Q2, it added 1.7 million net postpaid customers. This figure was more than the combined gains made by AT&T and Verizon during this period. Further, it continued to take strides in high-speed internet user additions, ending the quarter with over 1.5 million customers. This indicates a net customer addition of 560,000.

Additionally, the company is continuing to integrate Sprint Corp. (which it acquired two years ago), a move that promises substantial cost savings. The integration also means a loss of jobs as T-Mobile aims for synergies. The company has already trimmed its headcount by thousands but expects to add more employees by 2024 than either itself or Sprint would have employed individually.

Moreover, T-Mobile has also teamed up with SpaceX to provide services in areas across the globe that have no connectivity.

Is T-Mobile a Buy, Sell, or Hold?

Analysts, in the meantime, have a Strong Buy consensus rating on T-Mobile, and the average TMUS price target is $174.53. This implies 20.8% upside potential in the stock on top of its recent price run-up.

Additionally, on August 29, Morgan Stanley’s (NYSE: MSSimon Flannery reiterated a Buy rating on T-Mobile alongside a price target of $159.

The analyst expects T-Mobile to undertake a stock buyback program later this year and estimates repurchases worth $12 billion in 2023. That’s a significant chunk of T-Mobile’s ~$182 billion market capitalization.

Who Wins From These Turf Wars?

As cable operators and wireless service providers try to grab parts of each other’s turfs, both have their limits. Capacity limitations mean carriers cannot add customers beyond a threshold. Cable companies do not have the cellular infrastructure and remain at an advantage only in areas where they already have a presence and can offer new services under a bundled offering. The ultimate winners may be the consumers themselves, as heightened competition can continue to drive down prices.

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