Sky staves off the cold winter once again as profits and customer numbers rise
The City cheered Sky yesterday as – despite increasing competition in sport, huge amounts of industry consolidation occurring all around it and a mobile offering due to launch behind those of rivals – the firm continues to grow.
With the former exclusively UK broadcaster now reporting solid growth across all of its three European markets, an expected £644m operating profit for the six months to 31 December was blown out of the water by the actual £675m reported yesterday.
Shares rose a solid 1.33 per cent on the news that Sky added 204,000 new customers in Britain and Ireland over its last quarter, its highest growth in nine years. In Germany, it signed up 214,000 customers, 55 per cent more than a year earlier and taking the German retail customer base past the 4m mark. Italy had its best growth in 12 quarters, helped by fewer customers leaving the platform.
“The strength of our performance in the UK and Ireland shows that our approach to segmenting the market with the complementary Sky and Now TV brands is working,” said chief executive Jeremy Darroch. “Across the board, customers are responding to our investment in more high-quality TV and innovative new services. This has resulted in the highest customer growth in nine years, the highest total product growth in four years and the lowest churn in a decade.”
The growth comes to a market currently in flux. Fixed-line operators, like BT and Sky, are racing to add mobile services to their product lineups. Mobile operators, like Vodafone, are racing to figure out how to launch their own TV and broadband products. And Sky itself faces an existential threat to what was once its crowning glory, the Sky Sports empire, from the increasingly strong BT Sport.
“This is the first evidence that the connected boxes strategy unveiled by the company at the full year 2013 results is working strongly,” wrote Barclays analyst Julien Roch. “Yes, the market is more competitive in the UK with BT and over-the-top players offering new alternatives. But Sky has now demonstrated it can still grow nicely thanks to a superior TV product.”
Even the most bearish analysts that cover the company yesterday admitted the business showed good growth in its current state.
“Sky’s first half results showed good grow in customers across markets, improvement in churn and average revenue per user,” wrote Liberum expert and Morning Wire analyst of the year Ian Whittaker. “We maintain our cautious stance on the name given the risk around the Premier League rights (losing to BT, no new news at the moment) and the potential impact of retransmission fees on its business.”
Questions still loom over Sky. Can its UK business continue to grow as BT attempts to entice Sky’s premium sporting customers to switch their broadband provider?
Will Sky’s mobile offering, not due to launch in conjunction with O2 until 2016, have what it takes to combat a merged BT and EE? And can the German and Italian markets provide the synergies and growth Sky needs over the next five years?
For now at least Sky has managed to silence some of its naysayers.