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We reiterate our long-term Neutral recommendation on Virgin Media Inc. (VMED - Analyst Report) following its mixed financial results for the first quarter of 2012. In the previous quarter, average monthly churn rate was 1.2%, remaining same year over year. However, those who still opted for Virgin Media’s services have shown their preference for the company’s high-margin bundled services with super fast broadband offerings. Virgin Media’s bundled services offerings are receiving huge market traction. At the end of the first quarter, triple-play and quad-play penetration climbed 64% and 15% year over year, respectively.
Management cited two positive factors for its future growth: (1) TiVo Inc. (TIVO - Analyst Report) developed next-generation TV platform, which supports on demand broadband video services and applications (2) gradual roll-out of ultra-fast 100 Mbps broadband network. Meanwhile, the stock price dropped over 30% last year and is currently fairly valued. Already 677,100 customers have installed Virgin Media’s next-generation TV platform. In the first quarter of 2012, the company added a net 242,000 next-generation Internet TV customers.
Virgin Media has entered into the 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. The company is utilizing the innovative technologies of CenturyLink Inc. (CTL - Analyst Report) to offer this innovative cloud computing. The major 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.
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