Televisa Continues to Face Competitive Pressure

Televisa TV continued to face weakness at Sky and stiff broadband competition during the fourth quarter. We’ve cut our expectations for the core business while also reducing our estimate of the value of TelevisaUnivision, pulling our Televisa fair value estimate down to $10 from $14 per ADR. Competition in the Mexican broadband business remains a concern—especially with Televisa management stating it has abandoned hope for a merger with Megacable—but we believe the stock’s valuation is very undemanding.

Cable segment revenue increased 1.4% year over year. Customer metrics remain solid, however, as Televisa added 78,000 net new broadband customers during the quarter and 335,000 for the year, which compares well against Megacable (304,000 net adds for the year) and America Movil (net loss of 12,000). Privately held Total Play likely remains the industry growth leader. The presence of four competitors that are each rapidly expanding or upgrading their networks has produced a challenging competitive environment. We estimate Televisa’s revenue per broadband customer declined about 2% during 2022 despite inflationary pressure in Mexico. Despite this pressure, the consumer cable business held the EBITDA margin steady at 43% during the quarter versus a year ago. Weakness in the lumpy enterprise business pulled the total cable EBITDA margin down to 41% from 44% a year ago.

Revenue in the Sky satellite business dropped 8% from a year ago, a slight improvement versus the prior quarter. The firm continued to lose customers at a rapid clip, with the base shrinking 16% during 2022. However, revenue per customer was a bright spot, growing 6% year over year during the fourth quarter, the first meaningful increase in nearly two years. This result indicates that management is making progress with its effort to purge unprofitable customers. Excluding costs related to the World Cup, Sky’s EBITDA margin was flat at 34% year over year during the quarter despite the drop in revenue.