Televisa Earnings: Disappointing Broadband Customer Growth and Cable Margins

Televisa TV reported disappointing second-quarter results, posting a net decline in cable broadband customers and a sharp contraction in cable profitability. Management highlighted the appointment of telecom veteran Francisco Valim to head the cable business. Valim, who has served as CEO of several firms in Brazil, hasn’t yet officially joined Televisa but addressed investors briefly, mentioning an ongoing structural review that will serve as the basis for improving cash flow. We are cutting our fair value estimate to $9 from $10, as the strong peso partially offsets cuts to our growth and margin expectations.

Cable segment revenue growth accelerated to 4.6% year over year from 2.7% during the first quarter, but underlying metrics were weak. The firm lost 38,000 net broadband customers during the quarter versus a 78,000 gain a year ago despite expanding its network footprint about 6% over the past year. Televisa claims it has seen a spike in customer defections as customers roll off promotional rates and respond to price increases implemented in April. We estimate revenue per cable customer increased about 2% versus a year ago—the best pace over the past couple of years but still well short of inflation. The cable EBITDA margin contracted to 39% from 42% last year on higher labor and television content costs.

In a healthier competitive environment, we would expect Televisa to be able to raise prices fast enough to maintain margins without hitting customer growth. America Movil has reported substantially stronger broadband customer growth this year as its fiber network gains scale. Megacable and Total Play have yet to report second-quarter results. We believe these three firms need to find a way to work together to take on the much larger Movil. Yet, Televisa and Megacable continue to expand their networks independently—Televisa has already built to 700,000 new locations this year, well ahead of pace versus its initial 900,000 location target for the year.