We upgrade our recommendation on Virgin Media Inc. (VMED) to Outperform. The company reported strong results for the first quarter of 2011. These solid results were primarily attributable to solid top-line growth, higher operating income, and customer’s preference toward the company’s bundled services. Besides, the company’s bundled service offerings are gaining increasing market traction.
The customers are now more inclined toward high-margin premium services, which offer faster speed. At present, 63% of its total customers subscribes to the company’s triple-play services. In the last quarter, quad-play penetration climbed 12% year over year. Moreover, Virgin Media’s Business segment performed exceptionally well, adding new enterprises to its high-speed fiber network. Strong free cash flow generation has helped the company to de-leverage its balance sheet and continue share repurchase.
Virgin Media is gradually rolling out the super-fast DOCSIS 3.0 network offering downstream speed of 100 Mbps and an upstream speed of at least 10 Mbps. 100 Mbps tier now covers 2 million customers and will be available throughout U.K. by mid-2012. The company currently offers DOCSIS 3.0 network in three different tiers offering downstream speed of 10 Mbps, 20 mbps, and 50 Mbps. Virgin Media added 66,400 HD TV subscribers in the first quarter of 2011 to 1.5 million. Leveraging the technological superiority of its fiber optic cable network, the 100 Mbps tier will place the company as the only mass-market provider of ultra-fast speeds in the UK.
From last December, Virgin Media has started offering a next-generation web TV platform to its subscribers. Virgin Media is utilizing TiVo Inc’s (TIVO) industry leading set-top boxes for this innovative offering. Already 65,000 customers have registered for Virgin Media’s next-generation TV platform. This new converged digital TV platform provides improved graphics, on- demand video content, catch-up TV service, web-based applications including games and personal video recorder. In a nutshell, Virgin Media’s new product will integrate the Internet and live TV on one screen through fiber-optic cable.
TIVO INC (TIVO): Free Stock Analysis Report
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