Virgin Media Inc. (VMED) outperformed in the fourth quarter of 2010, driven by higher revenue, higher operating income, and customer’s preference toward the company’s bundled services. In a nutshell, the company achieved highest financial performance in its history in fiscal 2010, mainly attributable to solid top-line and bottom-line growth.
Quarterly total revenue of approximately $1,587 million was up 6.6% year over year, outpacing the Zacks Consensus Estimate of $1,557 million. The increase was primarily due to significant growth in all four reporting segments, particularly strong growth in the Cable segment.
Net income from continuing operations, in the fourth quarter of 2010, was approximately $55.3 million or 17 cents per share compared with a net loss of $140.7 million or a loss of 43 cents per share in the prior-year quarter. However, quarterly adjusted (excluding restructuring charges and one-time tax benefit) EPS was a loss of 2 cents, a significant improvement over the Zacks Consensus Estimate of a loss of 11 cents.
Quarterly cost of sales was $645.9 million, up 7.6% year over year. Selling, General, and Administrative expense was $303.1 million, up 324.5% year over year. Total operating expense was $1,475 million, up 6.5% year over year. Quarterly operating income was $112.3 million, up 9.2% year over year.
During the fourth quarter of 2010, Virgin Media generated approximately $419.5 million of cash from operations, up 10.6% year over year. Quarterly free cash flow was around $181.7 million, up 36.3% year over year.
At the end of fiscal 2010, Virgin Media had approximately $758.1 million of cash and cash equivalents, up 11.4% year over year. At the end of fiscal 2010, total outstanding debt was around $9,518.9 million, up 0.8% year over year. At the end of fiscal 2010, debt-to-capitalization ratio was 0.82 compared with 0.80 at the end of fiscal 2009.
Consumer Products
During the fourth quarter of 2010, Virgin Media added 121,400 net new consumer products, which raised its total consumer product base to 13,607,900. Net consumer product addition for Broadband segment was 44,100, resulting in total subscriber base of 4,287,000.
Within this Broadband segment, more than 780,000 customers subscribed to either 20 Mbps or 50 Mbps services. This figure is an improvement of 40% year over year and now constitutes 20% of total cable Broadband subscribers. Further, a total of 118,000 customers are now using only 50 Mbps services, up 29% sequentially.
Net consumer product addition for TV segment was 12,100 resulting in total consumer product base of 3,778,800. During the reported quarter, Virgin Media added 91,900 HD (High Definition) TV customers, leading to a total installed based of 1.48 million and HD TV penetration rate of 39%.
Net consumer product addition for the Telephone segment was 9,100, resulting in total consumer product base of 4,331,300. Net consumer product addition for Mobile segment was 56,100, leading to total consumer product base of 1,210,800.
The company’s bundled service offerings are receiving increasing market traction. At the end of fiscal 2010, triple-play penetration surged 63% year over year and quad-play penetration climbed 11.8% year over year.
Subscriber Statistics
During the fourth quarter of 2010, Virgin Media added 17,100 Cable subscribers. Total Cable subscriber base at the end of fiscal 2010 was 4,800,100, up 1.6% year over year. Net subscriber addition for the non-Cable segment was 2,700. Total non-Cable subscriber base at the end of fiscal 2010 was 276,700, up 3.6% year over year. Net subscriber addition in the Mobile segment was 561,000. Total Mobile subscriber base at the end of fiscal 2010 was 1,210,800, up 27.5% year over year.
Consumer Segment
Overall quarterly revenue of the Consumer segment was approximately $1,346.8 million, up 7% year over year. Within this segment, Cable revenue was $1,079.6 million, an improvement of 6.7% over the prior-year quarter. ARPU (average revenue per user) of Cable services increased nearly 4.9% year over year to $75.1 in the reported quarter. Average monthly Cable churn inched up 1.3% year over year.
Mobile revenue was around $234.5 million, up 6.7% year over year. ARPU of Mobile services increased nearly 8.3% year over year to $24 in the reported quarter. Non-Cable revenue was $32.7 million, up 21.8% year over year.
Business Segment
Overall Business segment revenue, in the fourth quarter of 2010, was nearly $240.3 million, up 4.7% year over year. Within this segment, the high-margin Retail data revenue was $98.7 million, up 9.3% year over year. Retail voice revenue was $62.8 million, down 5.7% year over year. LAN solutions revenue was $10.3 million, down 23.5% year over year. Wholesale revenue was more than $68.5 million, up 15.2% year over year.
Recommendation
Virgin Media cited two positive factors for its future growth. These are (1) TiVo Inc. (TIVO) developed next-generation TV platform that will support on demand broadband video services and applications. (2) Gradual roll-out of ultra-fast 100 Mbps broadband network. We maintain a long-term Neutral recommendation on Virgin Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.
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