Liberty Global (LBTYA) Q1 Earnings Surge, User Base Weakens

Liberty Global’s LBTYA first-quarter 2020 net income was $949.8 million compared with the year-ago quarter’s $7 million.

Revenues inched up 0.3% year over year to $2.88 billion. However, on a rebased basis, revenues dipped 0.3% from the year-ago quarter.

Liberty Global lost 18,900 subscribers (revenue-generating units or RGUs) during the quarter compared with a subscriber loss of 1,700 in the year-ago quarter.

Top-Line Details

Average revenue per unit (ARPU) per cable customer relationships decreased 1% to $59.59. On a rebased basis, growth was 0.6%.

Mobile ARPU (including interconnect revenues) on a reported basis, inched up 2.9% to $16.74. On a rebased basis, the figure increased 0.5%.

Liberty Global PLC Price, Consensus and EPS Surprise

Liberty Global PLC Price, Consensus and EPS Surprise

Liberty Global PLC price-consensus-eps-surprise-chart | Liberty Global PLC Quote

 

Further, mobile ARPU (excluding interconnect revenues) on a reported basis, slid 1.6% to $13.74. On a rebased basis, the figure was down 1.3%.

U.K./Ireland RGU loss was 1,100 against a gain of 25,500 in the year-ago quarter.

U.K./Ireland revenues, on a reported basis, slipped 2.4% year over year to $1.62 billion. On a rebased basis, U.K./Ireland revenues were down 0.6% year over year due to declines in both mobile and B2B non-subscription revenues.

U.K./Ireland (Virgin Media) ARPU increased 1.2% to £51.97. On a rebased basis, growth was 1.2%.

Virgin Media’s fixed-line customer base was largely flat. Virgin added a record 72,000 postpaid mobile connections in the first quarter, driven by Oomph! FMC bundles, which feature super-fast broadband speeds combined with attractive mobile offers.

RGU attrition in Belgium was 7,500 compared with 15,200 in the year-ago quarter. Telenet added 6,000 mobile subscribers in the reported quarter.

Belgium revenues, on a reported basis, increased 0.9% year over year to $718.1 million. On a rebased basis, revenues fell 0.4% due to coronavirus adversity.

Belgium (Telenet) ARPU increased 1.9% (on a rebased basis also) to €58.34.

Switzerland RGU attrition was 16,400 compared with subscriber loss of 23,600 in the year-ago quarter. Moreover, UPC Switzerland’s fixed-line customer losses nearly decreased to half year over year in the quarter under review.

Switzerland revenues, on a reported basis, increased 0.3% year over year to $316.8 million. On a rebased basis, revenues decreased 2.7%, primarily due to weak consumer subscription revenues.

Continuing CEE (Poland and Slovakia) gained 6,100 RGUs compared with 11,600K in the year-ago quarter.

Continuing CEE revenues, on a reported basis, were unchanged at $119.1 million. On a rebased basis, the top line increased 3.5% owing to higher residential cable subscription revenues, driven by new build areas and growth in B2B.

Revenues from Dutch joint venture increased 3.3% year over year on a rebased basis.

Liberty Global built 123,000 new premises in the reported quarter including 93,000 in the U.K. & Ireland.

Operating Details

Operating income surged a whopping 166% from the year-ago quarter to $280.6 million.

Segmental operating cash flow (operating income after adjusted for non-cash items) decreased 3.6% year over year to $1.15 billion, on a rebased basis.

U.K./Ireland operating cash flow (OCF), on a rebased basis, declined 3.5% due to rise in network taxes and higher mobile data and programming costs.

Belgium OCF, on a rebased basis, increased 0.6% on lower sales and marketing expenses and stringent cost-control measures. Approximately, €10 million of prepaid sports costs were written off in the first quarter due to fixture disruption.

Switzerland OCF, on a rebased basis, was down 16% due to a decline in residential cable subscription revenues, and higher interconnect and mobile handset costs.

Finally, Continuing CEE OCF, on a rebased basis, increased 4.8% owing to higher residential cable subscription revenues.

Balance Sheet & Cash Flow

As of Mar 31, 2020, Liberty Global had $10.3 billion of cash, investments under SMAs and unused borrowing capacity.

Total principal amount of debt and finance leases were $27.5 billion for continuing operations. Moreover, the average debt tenor is seven years, with approximately 71% not due until 2026 or thereafter.

As of Mar 31, 2020, Liberty Global’s adjusted gross and net leverage ratios were 5.2X and 3.7X, respectively.

Cash provided by operating activities was $449.8 million, up 46.8% year over year.

Moreover, adjusted free cash outflow was $317 million in the first quarter compared with $558.7 million a year ago.

The company bought back roughly $500 million shares under its repurchase program in the reported quarter.

Post Q1 Development

Liberty Global and Telefonica plan to merge their U.K. operations. The 50-50 joint venture will combine Virgin Media, the U.K.’s fastest broadband network, and O2, the country’s largest mobile platform. The deal is expected to close in around mid-2021.

The joint venture is expected to deliver substantial synergies valued at £6.2 billion. The transaction is expected to generate £5.7 billion proceeds for Telefonica and £1.4 billion for Liberty Global (after an equalization payment of £2.5 billon to Telefonica).

Guidance

For 2020, Liberty Global expects rebased OCF to decline in mid-single digits on a year-over-year basis. Adjusted free cash flow is expected to be $1 billion, up 30% year over year. The company assumes lifting of lockdowns in the second quarter and an ensuing gradual economic recovery.

However, coronavirus is expected to negatively impact handset sales and premium video, both of which are low-margin businesses.

Zacks Rank & Stocks to Consider

Libert Global currently carries a Zacks Rank #3 (Hold). Electronic Arts EA, Netflix NFLX and Activision Blizzard ATVI are some better-ranked stocks in the broader consumer discretionary sector. While Electronic Arts sports a Zacks Rank #1 (Strong Buy), both Netflix and Activision carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for EA, Netflix and Activision is pegged at 8.2%, 30% and 18.8%, respectively.


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