Virgin Media Remains Neutral

Virgin Media Inc. (VMED) reported mixed financial results for the second quarter of 2011. The company lost 36,000 cable subscribers in the previous quarter, but those who still subscribes to Virgin Media’s services have shown their preference for its high-margin bundled services. As a result, the company’s bottom line improved significantly. The company’s bundled service offerings are receiving increasing market traction. At the end of the last quarter, triple-play and quad-play penetration climbed 63.8% and 12.6% year over year, respectively.

Virgin Media cited two positive factors for its future growth: (1) TiVo Inc. (TIVO - Analyst Report) developed next-generation TV platform that will support on demand broadband video services and applications. (2) Gradual roll-out of ultra-fast 100 Mbps broadband network. Nevertheless, we believe all these positives are already reflected in the current valuation and therefore reiterate our Neutral recommendation on Virgin Media.

Virgin Media is on the verge to enter cloud computing services for its business customers. The company’s cloud services will be delivered through a virtual private data center that can be made operational within just 2 hours. To offer this innovative cloud computing, the company will utilize latest technologies of CenturyLink Inc. (CTL - Analyst Report) The major new innovation of this cloud architecture is its flexibility.

Enterprises can use this service to launch e-commerce facilities having the flexibility to increase their virtual server size once customer demand grows. Customers have the option to use flexible tariff structure, which will be billed depending on power usage instead of hardware usage. Virgin Media is planning to double its revenue from Business segment within the next five years, using the cloud computing services. We believe cloud computing services will place Virgin Media head-on with BT Group plc. (BT - Snapshot Report) and Cable & Wireless Communications plc.