Virgin Media Remains Neutral - Analyst Blog

Virgin Media Inc. (VMED) reported excellent results for the third quarter of 2010. Despite generating less than expected subscriber growth, Virgin Media managed to beat both top-line and bottom-line as the company's existing subscribers are now more inclined to spend for its high-margin premium services that offer faster speed.

The company's bundled service offerings are getting increasing market traction. At the end of the third quarter of 2010, triple-play penetration increased 62.7% year-over-year and quad-play penetration increased 11.5% year-over-year.

Virgin Media is set to introduce super-fast EuroDOCSIS 3.0 network offering a downstream speed of 100 Mbps and an upstream speed of at least 10 Mbps by the end of 2010. The company currently offers EuroDOCSIS 3.0 network in three different tiers offering downstream speed of 10 Mbps, 20 mbps, and 50 Mbps.

Virgin Media added 222,100 HD TV subscribers in the third quarter of 2010. 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.

In another major development, Virgin Media has decided to extend the trial run of more advanced 200 Mbps broadband network in Coventry. However, the company did not provide any time frame from it will start commercial deployment of this service. 200 Mbps speed will focus on future technologies and applications, such as home teleconferencing and downloading HD programs on-demand, and 3D TV.

On the other hand, the stock price of Virgin Media has moved up by nearly 93% in the last year and currently provides limited scope for above-market gain. Moreover, the British pay-TV market is now more competitive after the launch of YouView. YouView is a joint collaboration between the BBC, ITV, Channel 4, BT Group Plc. (BT), Talk Talk and Arqiva.

This collaboration will bring Internet access and video on demand programming to the Freeview digital TV box. A business venture between top-level public broadcasters, Internet service providers, and broadcast transmission provider will have the capacity to marginalize Virgin Media in the UK market.

We therefore reiterate our long-term Neutral recommendation for Virgin Media. Currently it is a short-term Zacks #3 Rank (Hold) stock.

 
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