We reaffirm our long-term Neutral recommendation on Virgin Media Inc. (VMED), one of the leading pay television and fixed-line telephone services provider in the United Kingdom, following its robust third-quarter 2012 results. Both the top and bottom line of the company topped the respective Zacks Consensus Estimate.
Virgin Media is gradually rolling out the super-fast DOCSIS 3.0 network offering downstream speed of 100 Mbps and an upstream speed of at least 10 Mbps. The 100 Mbps network will be available throughout the UK by the end of 2012. The company currently offers DOCSIS 3.0 network in three different tiers; providing downstream speed of 10 Mbps, 20 mbps, and 50 Mbps, respectively. At the end of the previous quarter, over 1.3 million customers subscribed to either 30 Mbps or higher services, constituting 31% of total cable Broadband subscribers. More than 590,000 customers are using 50 Mbps tier or higher tier services.
Further, Virgin Media and TiVo Inc’s (TIVO) jointly made major software updates for their next-generation TV platform. The TiVo companion application will enable Virgin Media customers to use their Apple iPADs to interact directly with their TiVo service while extending their viewing experience beyond the remote control. The company is negotiating with video streaming service providers, such as Netflix and Amazon.com’s Lovefilm to add shows and movies to its TiVo DVR boxes.
Virgin Media started offering a next-generation web TV platform to its subscribers. Virgin Media is utilizing TiVo Inc.’s industry leading set-top boxes for this innovative offering. Moreover, the company has also entered into the cloud computing services for its business customers.
Despite such positive traits, highly competitive UK telecom market with low barriers to entry may act as headwinds for the company going forward. Moreover, a joint collaboration between the BBC, ITV, Channel 4, BT Group, Talk Talk and Arqiva has become a major threat to Virgin Media.
Currently, Virgin Media has a Zacks #3 Rank, implying a short-term Hold rating on the stock.
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