Behind Liberty Global plc's Falling Revenue in Q3
Liberty Global plc (NASDAQ: LBTYK) continued to see slow, but steady, growth in its European telecommunications market as its own technology and the broader economy improved. Next-generation television is even picking up steam as the company learns how to keep customers watching its TV offerings.
Below is a look at the financial highlights of Liberty Global's European operations.
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Liberty Global plc: The raw numbers
Metric | Q3 2017 | Q3 2016 | Year-Over-Year Change |
|---|---|---|---|
Sales | $3.88 billion | $4.31 billion | (10.1%) |
Operating cash flow | $1.84 billion | $2.06 billion | (10.9%) |
Free cash flow | $714.6 million | $558.3 million | 28% |
Data Source: Liberty Global plc earnings release. Includes only European operations.
What happened with Liberty Global plc this quarter?
The top line and operating cash flow numbers don't exactly tell the whole story for Liberty Global, given some of the structural moves it made in the last year. Here are some highlights for investors to keep in mind:
The revenue decline was driven by the deconsolidation of operations in the Netherlands, which are now in a joint venture with Vodafone Group and a negative impact from foreign exchange rates. On a rebased basis, growth was up 2.5% over a year ago. The same is true of operating cash flow, which was up 3.9% on a rebased basis.
Organically, Liberty Global Group Europe added 204,400 revenue generating units (RGUs) in the quarter. It lost 30,800 video RGUs in the quarter but added 132,900 data RGUs and 102,300 voice RGUs.
The U.K. and Ireland added 92,400 RGUs, Germany added 68,100 RGUs and Central and Eastern Europe had growth of 65,800 RGUs.
Next-generation video is starting to progress with 216,000 subscribers on the platform and 7.5 million reachable customers.
Borrowing costs fell from 4.8% a year ago to 4.5% and the company had $4.8 billion of liquidity.
What management had to say
CEO Mike Fries was pleased with the results. "The European market remains highly competitive, but our investments in the fastest broadband speeds, the coolest video apps and compelling quad-play bundles are allowing us to win share across our footprint," Fries said.
It's this complete offering that's allowing Liberty Global to grow in Europe and its investment in fixed assets should continue to pay off with operating cash flow growth.
Looking forward
People continue to cut the cord in Europe, but data and voice customers are picking up the slack and driving RGU growth. What investors will want to watch for is if quad-play packages that include next-generation TV services begin to pick up steam in the next few quarters. If they do, the company may start to see growth across the board and be able to grow more than the low single digits we're seeing today.
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Travis Hoium owns shares of Vodafone. The Motley Fool recommends Liberty Global. The Motley Fool has a disclosure policy.
