We reiterate our long-term Neutral recommendation on Virgin Media Inc. (VMED) following its mixed financial results for the first quarter of 2012. In the previous quarter, average monthly churn rate was 1.2%, remaining same year over year. However, those who still opted for Virgin Media’s services have shown their preference for the company’s high-margin bundled services with super fast broadband offerings. Virgin Media’s bundled services offerings are receiving huge market traction. At the end of the first quarter, triple-play and quad-play penetration climbed 64% and 15% year over year, respectively.
Management cited two positive factors for its future growth: (1) TiVo Inc. (TIVO) developed next-generation TV platform, which supports on demand broadband video services and applications (2) gradual roll-out of ultra-fast 100 Mbps broadband network. Meanwhile, the stock price dropped over 30% last year and is currently fairly valued. Already 677,100 customers have installed Virgin Media’s next-generation TV platform. In the first quarter of 2012, the company added a net 242,000 next-generation Internet TV customers.
Virgin Media has entered into the cloud computing services for its business customers. The company’s cloud services will be delivered through a virtual private data center that can be made operational within just 2 hours. The company is utilizing the innovative technologies of CenturyLink Inc. (CTL) to offer this innovative cloud computing. The major innovation of this cloud architecture is its flexibility. Enterprises can use this service to launch e-commerce facilities having the flexibility to increase their virtual server size once customer demand grows.
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