Com Hem, MTG and Netflix first out of the gates in third quarter earnings season
20 October 2017
This week several media companies have published their quarterly reports. Swedish media conglomerate MTG reported turnover figures that exceeded analysts’ expectations. However, what attracted the most attention was the performance of MTGx, MTG’s division dealing in digital entertainment. While MTGx turnover more than doubled to 798 MSEK (321), the acquisition of German games developer Innogames accounts for a clear majority of the large increase. The organic growth for MTGx was a more modest 39%. Also, MTGx has yet to record a profit. The operating loss amounted to 38 MSEK during the third quarter, a result that, once again, was helped through the inclusion of Innogames. Without Innogames, MTGx would have recorded a loss of 95MSEK. In other words, the organic operating margin for MTGx in the quarter was around -21%. MTG’s share price took a hit following the news, but has since recovered and is currently at a 3-year high.
Com Hem group reported a relatively strong third quarter, with an overall increase in turnover by 36% to 1,780 MSEK (1,309). However, this is mostly due to the inclusion of Boxer revenue figures in this year’s quarter. The organic growth (i.e. excluding Boxer) was 3.6%. Com Hem reports a record breaking quarter in terms of new unique customers, with an increase of 11,000 new unique customers to a total of 972 000. Conversely, Boxer recorded a decrease of 9,000 unique customers. Com Hem subscriptions for digital tv and broadband increased by 6,000 and 12,000 respectively. Boxer recorded a positive development in the broadband segment, with an increase of 5,000 broadband subscriptions, but a net loss of 6,000 digital TV subscriptions. In other words, the net effect for the Com Hem group on the digital TV side was 0 in total number of subscriptions. Com Hem management has suggested a 50% increase in dividends for 2018 and the stock market reacted positively to the news, with Com Hem’s share price having risen by 7% since and now at a new all-time high.
Streaming giant Netflix reported a mixed bag of news, relative to their extremely strong record over the last few years and the continued high expectations. Overall, the company reported an increase in streaming revenue by 33% year-on-year (YOY). The driving force behind the increased revenue is a 5.3 million net addition in subscriptions during the third quarter (YOY). In the US, the number of subscriptions increased by 850,000 to a total of 52.8 million, while subscriptions outside the US increased by 4.5 million. In total, Netflix now has 109.3 million globally (including US). These figures beat analysts’ estimates, especially for subscriptions, but also slightly above the mark for expected revenue. However, Netflix’ earnings per share (EPS) came in lower than expected, and the company continues to operate with a large negative cash flow (-$465 million). Looking forward, Netflix announced that they will spend between $7 and $8 billion on content, with around 25% being invested in original content. Approximately half of all Netflix’ upcoming original productions are non-US productions. During the fourth quarter, Netflix will roll out price increases to existing subscribers in the US and other territories. Netflix share price initially rose following the report, but has since fallen and looks set to end the week at a lower level than prior to the report.