The global pay-TV industry is going through a volatile phase. The North American markets continue to witness significant video subscriber losses due to the emergence of cheaper online video streaming services. This incident has resulted in massive cord cutting.
On the other hand, increasing competition, cut-throat pricing strategy and offering bundled-services at discounted prices are impeding revenue growth for European pay-TV operators.
A Shift in Industry Dynamics
Over the last six years, the internal dynamics of the pay-TV market have been gradually shifting from cable/satellite TV offerings toward fiber-based video services of large telecom operators. Moreover, the strong presence of low-priced online video streaming service providers is posing a significant threat to the existing pay-TV business model. Video offering, the core business area of the cable/satellite TV operators, seems to be slipping out of their hands.
Consolidation to Continue
Meanwhile, the global pay-TV industry is currently witnessing massive consolidation. It has become imperative for pay-TV operators to attain scale, higher productivity and effective cost management in order to survive the competition. This might have led to the proposed merger of nation’s two largest cable TV operators, namely, Comcast and Time Warner Cable as well as the proposed merger of AT&T with DIRECTV.
3 Stocks to Avoid
A major concern for the global pay-TV industry is the prolonged macroeconomic fluctuations resulting in uneven disposable income for households. Pay-TV operators are highly dependent on new households for strengthening their client base. Moreover, penetration of digital video customers is almost reaching saturation in the U.S.
At this juncture, we believe investors should dump those stocks which carry an unfavorable Zacks Rank. Taking these factors into account, we present three such Zacks Rank #4 (Sell) stocks for investors to avoid:
DISH Network Corp. (DISH): The second largest satellite TV operator in the U.S. lost 44,000 video subscribers in the second quarter of 2014. Average monthly subscriber churn rate was 1.66% as against 1.42% in the previous quarter. DISH has developed a strong portfolio of wireless airwaves. However, management is undecided about its utilization so far.
Meanwhile, in the last 60 days, the Zacks Consensus Estimate for earnings fell by 1 cent and 11 cents for third-quarter 2014 and fiscal 2014, respectively. For the ensuing third-quarter, the Zacks Consensus Estimate for earnings stands at 41 cents, reflecting a year-over-year decline of a whopping 40.07%. The same for fiscal 2014 is pegged at $1.68, indicating a year-over-year decline of 9.95%.
Liberty Global Plc. (LBTYA): This leading cable MSO (multi-service operator) in Europe lost 72,000 video subscribers in the second quarter of 2014. The company is concentrating on western Europe, which at present is economically the most vulnerable region.
Liberty Global has witnessed a negative average earnings surprise of a significant 83.03% for the last four reported quarters. For fiscal 2014, the Zacks Consensus Estimate for earnings declined by 25 cents over the last 60 days and currently stands at 2 cents. This indicates a massive 92.86% fall year over year.
Shaw Communications Inc. (SJR): The second largest cable MSO in Canada lost 12,075 cable video subscribers and 5,608 satellite TV customers in the third quarter of fiscal 2014. Meanwhile, Shaw Communications is facing intense competitive pressure from Telus Corp. (TU). Moreover, considerable debt, rising capital expenditure and deteriorating cash position may act as headwinds for the company going forward.
The company has generated a negative average earnings surprise of 4.47% for the last four reported quarters. Although, the Zacks Consensus Estimate of $1.61 for fiscal 2014 reflects year-over-year growth of 5.12%, it deteriorated by 2 cents over the last 60 days.
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