We reiterate our long-term Neutral recommendation on
Liberty Global Inc.
) although it missed both the top and bottom lines of the Zacks
Why Remains Neutral?
Strong demand for its digital cable TV service, faster
broadband, and triple-play bundled offerings coupled with strong
foothold in the European cable MSO market and massive share
repurchase plan of $1 billion will together continue to act as
tailwinds for the company going forward.
Liberty Global has recently launched a hybrid IP video gateway
called "Horizon TV" in the Netherlands, where customers can share
TV shows in multiple devices. Horizon TV also features an
in-build application store for YouTube, Wikipedia and Facebook.
This service will be extended in Switzerland, Germany and Ireland
within the next 3-6 months. Such an innovative product launch
coupled with the acquisition of the remaining 50% stake of its
MGM Latin America venture and the remaining 49% stake of its MGM
Central Europe venture will continue to drive profitability while
However, soft European economy coupled with business
integration risk arising from several acquisitions made may act
as headwinds for the company in the future.
Moreover, Liberty Global continues to lose customers for its
basic video offerings. In the third quarter of 2012, it lost a
net total of 90,000 video customers. This was mainly due to huge
video subscribers' loss in the Romanian operations. Several
European broadband service providers are gradually deploying
high-speed DSL and Fiber-to-the-Home networks, making the
industry extremely competitive.
In addition, we expect more cash-squeezed consumers to
downsize the existing services and churn off the subscriber base.
Furthermore, the stock of Liberty Global is currently trading at
a 52-week high.
Cable Stocks Outlook in European Region
Liberty Global is predominantly operating in Europe, which at
present is economically the most vulnerable region. The company
is gradually concentrating in western Europe.
However, we also prefer Liberty Global's close rival
Virgin Media, Inc.
BT Group plc.
) as both these companies are gaining strong foothold in the
European market. Both these companies are Zacks #3 Rank (Hold)
Currently, BT Group has a Zacks #3 Rank, implying a short-term
(Hold) rating on the stock while Virgin Media has a Zacks #2
Rank, implying a short-term (Buy) rating on the stock.
BT GRP PLC-ADR (BT): Free Stock Analysis
LIBERTY GLBL-A (LBTYA): Free Stock Analysis
VIRGIN MEDIA (VMED): Free Stock Analysis
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