BSkyB shares rally after paid subscriptions hits 30m mark

Shares in BSkyB rallied 1% in trading on Thursday after the broadcaster reported strong results for the nine months to March end, seeing paying subscriptions to its products break the 30 million mark for the first ever time.

BSkyB reported adjusted operating profits increased by 9% to £994m whilst revenues rose by 6% to £5.4bn. Earnings per share increased by 16p to 43.7p.

Total paying subscriptions rose 9% to 30.23m from a year ago and importantly the average number of products per customer increased from 2.6 to 2.8, showing higher appetite and customer loyalty. The increase in demand has meant that the company is now looking to hire an additional 550 staff in the year to help service its growing client base.

Programming costs increased by £151m to £1.86bn, half of which was attributable to the inclusion of the Formula One and Ryder Cup rights as well as additional movie costs. At the same time however, operating margin increased by 0.6% to 18.5%, calming these cost rises.

CEO Jeremy Darroch said “these results highlight the way our successful transition to more broadly-based growth has created a bigger, more profitable business.”

In truth, the numbers is not a huge surprise but does much to reaffirm the broadcaster’s dominance and earnings consistency, something shareholders value extremely highly an environment which is quickly seeing earnings volatility.

What the company is focusing on doing is increasing the amount of products its customers use to embed its users to Sky, thereby increasing the difficulty of changing providers and broadening its brand loyalty. The increase in average client products usage from 2.6 to 2.8 is an important metric to track, just as much as the bottom line figures which continues to show a consistency of earnings for the company’s shareholders.

In terms of proportionate growth across its range of products, TV has decreased from 37% to 34.3%, whilst HD has increased marginally from 15.2% to 15.5%. There was a faster growth in the take up of Sky broadband, which increased its share of total product users to 14.5% from 13.9%.  This means that there is a greater diversification across its product subscriber base.

That said, there are 2 minor areas of concern when digesting these results.

First, churn rates increased from 10.1% a year ago to 10.8% for the same quarter. This means that the company needs to work harder to attract even more new subscribers as the leaking bucket has grown. This is nothing to get overly concerned about yet, but after churn rates fell from 10.9% in Q1 to 10.3% in Q2, it is an unwanted increase. This the company correlated to increased pressure on household budgets. The diversification away from TV products to broadband and online subscriptions needs to be watched as househo0lds consider more cost efficient entertainment.

Secondly, advertising revenues fell from £334m a year ago to £327m, a fall of 2%. Whilst a 2% fall is not dramatic, again this is an unwanted element. Despite the company growing its subscriber base to above 30m, they have been unable to increase advertising revenues. However, as a proportion of total revenues, advertising contributes just 6%, which has fallen from 6.6% a year ago. Retail subscriptions contribute 82% of total revenues. So whilst the fall in advertising is disappointing, it is not affecting the broadcaster in a similar way that it would for ITV. As such, even a 10% fall in advertising revenues going forward would likely be offset healthily by the current rate of subscriber increase.

All in all however, these concerns are not significant enough to derail the positivity surrounding these numbers. Perhaps the minority of concerns is in fact the best way to sum up these numbers.