Virgin Media Inc. (VMED) reported mixed financial results for the second quarter of 2011. The company lost cable subscribers in the last quarter but those who still subscribes to Virgin Media’s services have shown their preference for its high-margin bundled services. As a result, the company’s bottom line improved significantly. Till now, the company installed TiVo Inc. (TIVO) developed next-generation TV platform for around 50,000 customers. Furthermore, in April 2011, Virgin Media conducted trial runs for 1.5 Gbps broadband speed, the fastest broadband transmission rate in the world.
Net income from continuing operations, in the second quarter of 2011, was approximately $161.3 million or 49 cents per share compared with a net loss of $98.4 million or a loss of 35 cents per share in the prior-year quarter. Quarterly EPS of 49 cents was miles ahead of the Zacks Consensus Estimate of 17 cents. Quarterly total revenue of approximately $1,620 million was up 2.2% year over year but slightly below the Zacks Consensus Estimate of $1,635 million. The year-over-year increase was primarily due to significant growth in the Cable segment.
Quarterly cost of sales was $640.6 million, down 1.1% year over year. Selling, General, and Administrative expense was $334.9 million, down 1.7% year over year. Total operating expense was $1,398 million, down 3.8% year over year. Quarterly operating income was $221.7 million, up 69.5% year over year. During the first half of 2011, Virgin Media generated approximately $916.3 million of cash from operations, up 23.2% year over year. Quarterly free cash flow was around $384.6 million, up 87% year over year.
At the end of the second quarter of 2011, Virgin Media had approximately $752.8 million of cash and cash equivalents compared with $758.1 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was around $9,856 million compared with $9,518.9 million at the end of fiscal 2010. At the end of the second quarter of 2011, debt-to-capitalization ratio was 0.83 compared with 0.82 at the end of fiscal 2010.
New Capital Return Program
Virgin Media announced a fresh capital return program of GBP 850 million. Out of this, GBP 625 million will be paid through share buy-back, which will be completed by end 2012. The remaining GBP 225 million will be paid through repurchase of the company’s debt and convertible securities.
Consumer Products
During the second quarter of 2011, Virgin Media added 16,200 net new consumer products, which raised its total consumer product base to 13,752,800. Net consumer product deletion for Broadband segment was 18,100, resulting in total subscriber base of 4,314,500. Within the Broadband segment, nearly 1 million customers subscribed to either 20 Mbps or higher services. This figure at present constitutes 25% of total cable Broadband subscribers. Furthermore, a total of 170,000 customers are now using 50 Mbps or higher services. The 100 Mbps network of Virgin Media, which offers fastest broadband speed in the U.K., will be available throughout the country by mid-2012.
Net consumer product deletion for TV segment was 21,200 resulting in total consumer product base of 3,767,700. During the reported quarter, Virgin Media added 131,000 HD (High Definition) TV customers, leading to a total installed base of 1.7 million and HD TV penetration rate of 45%. Net consumer product deletion for the Telephone segment was 27,700, resulting in total consumer product base of 4,324,000. Net consumer product addition for Mobile segment was 83,200, leading to total consumer product base of 1,346,600. The company’s bundled service offerings are receiving increasing market traction. At the end of the reported quarter, triple-play and quad-play penetration climbed 63.8% and 12.6% year over year, respectively.
Subscriber Statistics
During the second quarter of 2011, Virgin Media lost 36,000 Cable subscribers. Total Cable subscriber base as of June 30, 2011 was 4,784,300, up 0.3% year over year. Net subscriber deletion for the non-Cable segment was 6,300. Total non-Cable subscriber base as of June 30, 2011 was 266,400, down 2.3% year over year. Net subscriber addition in the Mobile segment was 83,200. Total Mobile subscriber base as of June 30, 2011 was 1,346,600, up 22.7% year over year.
Consumer Segment
Quarterly revenue of the Consumer segment was approximately $1,371.3 million, up 2.9% year over year. Within the segment, Cable revenue was $1,121 million, an improvement of 4% over the prior-year quarter. ARPU (average revenue per user) of Cable services increased nearly 3.2% year over year to $77.8 in the reported quarter. Average monthly Cable churn inched up 1.4% year over year.
Mobile revenue was around $217.9 million, down 2.7% year over year. ARPU of Mobile services inched down nearly 0.6% year over year to $23.5 in the reported quarter. Non-Cable revenue was $32.4 million, up 0.5% year over year.
Business Segment
Business segment revenue, in the second-quarter 2011, was nearly $248.4 million, down 1% year over year. Within this segment, the high-margin Retail data revenue was $112.9 million, up 9% year over year. Retail voice revenue was $62.12 million, down 7.6% year over year. LAN solutions revenue was $15 million, down 6.2% year over year. Wholesale data revenue was $52.9 million, down 2.4% year over year. Wholesale voice revenue was $5.6 million, down 44.3% year over year.
Recommendation
Virgin Media cited two positive factors for its future growth. Firstly, TiVo developed next-generation TV platform that will support on demand broadband video services and applications. seco Gradual roll-out of ultra-fast 100 Mbps broadband network. We maintain our long-term Neutral recommendation on Virgin Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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