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Morningstar | Televisa Reports Mixed 2Q; Cable Division Remains the Bright Spot

Grupo Televisa posted a mixed second quarter as the Mexican media giant continues to make strides in turning its businesses around. Broadband remains a bright spot for the firm as it undergoes a transitional 2019. The outlook for advertising revenue remains weak due to the government's decision to slash advertising spending by 50% across the board and a weak macroeconomic climate. We are maintaining our wide economic moat rating for Grupo Televisa and our fair value estimate of $17. With shares trading in 5-star territory, the current levels may provide an attractive entry point for investors.

Consolidated net sales fell to MXN 24.3 billion, down 9% year over year. Revenue would have been down about 3% excluding MXN 1.7 billion in non-recurring World Cup licensing revenue recognized a year ago. Revenue for the content segment fell by 13% to MXN 8.0 billion, driven by lower ad and licensing revenue. Ad sales fell by 17% due to the expected lower government ad buys and the World Cup last year. However, the private sector remains a concern as ad revenue from private sources fell 5% even after excluding the World Cup. Concerns around the macroeconomic climate and the volatile currency rate have forced some client to the sidelines. Royalties from Univision decreased to $100 million from $103 million a year ago. Operating margin for the content division declined by 120 basis points from last year to 36.4% due to the lower revenue.

The cable segment posted strong results once again as revenue hit MXN 10.2 billion, up 16% versus the same quarter last year. The firm added 286,000 customers in the quarter, the ninth straight quarter of growth. Broadband demand remains strong as the subscriber base grew by 72,800. The enterprise business has also continued to grow in a tough environment with revenue up 9%, the fourth straight quarter of growth. Margin for segment improved by 160 basis points to 43.8%. We agree with management that the cable division should be continue to expand margins as penetration continues to improve.

Revenue in the Sky satellite business declined 6% from the second quarter of 2018 to MXN 5.3 billion as net television customer losses were 568,000, due largely to the post-World Cup hangover. The fixed wireless broadband segment added 73,100 customers in the quarter, maintaining the momentum from its strong start. Sky’s operating margin for the quarter fell by 180 basis points to 43.1%, as ongoing cost controls were more than offset by lost subscribers and launch costs for the broadband service.