We upgrade our recommendation on Grupo Televisa S.A. (TV) to Neutral following its third quarter of 2011 financial results, which surpassed the Zacks Consensus Estimates. The company lost massive advertising revenues from businesses of Mexican telecom tycoon Carlos Slim. Nevertheless, Televise continues to generate higherpay-TV revenue, better-than-expected programming revenue from Brazil, and higher royalties from its newly formed agreement with Univision in the U.S.
Televisa is a dominant force in the Mexican media business. The company is almost a monopoly with around 70% of the Mexican open television market. Even though it has a comfortable position in the Mexican market, Televisa has been expanding to more stable and developed markets in the U.S. and in Europe. Televisa’s goal is to create a North American Spanish language media empire, comprising broadcast, Internet, publishing, and live events. The potential for growth in the U.S. Spanish market is remarkable and Televisa is in a great position to take advantage of this trend.
Televisa is once again eyeing wireless opportunities. In April 2011, the company announced that it is negotiating with Mexican wireless operator Grupo Iusacell for a possible venture. Some industry watchers predicted that Televisa may buy a large chunk of outstanding debt of Iusacell, which is at present under creditor protection. However, it is still not clear whether Televisa will directly form a wireless venture with Iusacell or become a reseller of the latter. Undoubtedly, a foothold in the lucrative Mexican wireless market will open up a strong revenue stream for Televisa. The deal is awaiting regulatory approval.
Earlier, Televisa received a serious blow for its median wireless initiative. In October 2010, the company together with its partner NII Holdings Inc. (NIHD) announced that the mutual decision will break their partnership in Mexico. The reason for this break-up was a series of legal battles with competitors.
