Zacks_Analysts' Blog : NET Servicos Posts Mixed Results - Analyst Blog

NET Servicos de Comunicacao S.A. (NETC) declared mixed financial results for the third quarter of 2010. Quarterly net income was $42.5 million or 13 cents per share compared to a net income of $115.8 million or 34 cents per share in the year-ago quarter. EPS was also below the Zacks Consensus Estimate of 15 cents. NET Servicos cited unfavorable movement of foreign currency exchange rate is the primary reasons for this poor performance.

Gross revenue in the quarter was $1,074.3 million, an improvement of 16% year over year. This was mainly due to higher subscription revenue as the subscriber base enlarges. Net revenue (excluding connection cancellations and sales taxes), in the reported quarter, was $814.9 million, up 16% year over year. This was significantly higher than the Zacks Consensus Estimate of $743 million.

By segment, Subscription revenue was $929.3 million, up 15.3% year over year. Hook-up revenue was $2.22 million, down 88.3% year over year. Revenue from Other services was $142.8 million, up 41.6% year over year.

At the end of the quarter, Pay TV subscriber base was 4,065,000, up 12% year over year. Net additions during the quarter were 183,000 clients. Churn rate was 14.4% compared to 16% in the prior-year quarter.

Broadband subscriber base totaled 3,329,000, up 19% year over year. Out of this, bidirectional household penetration reached 35%. Fixed Telephone Line in Service was 2,980,000, up 20% year over year. Quarterly consolidated ARPU was $80.85, up 2% over the prior-year quarter. 

Quarterly operating expenses were $394.8 million, up 13.2% over the prior-year quarter. This was mainly due to 22% increase in Programming costs and 15.5% increase in Personnel & Benefit expenses. Selling, general  & administrative expense was $197.4 million, up 20.1% year over year.

Quarterly EBITDA was $217.7 million, an improvement of 14.3% year over year. EBITDA margin in the quarter under review was 26.7% compared to 27% in the year-ago quarter. Quarterly EBIT was $87 million, up 9% year over year. EBIT margin was 10% compared to 13.9% in the year-ago quarter.

At the end of the quarter, NET Servicos had $533.1 million of cash and cash equivalents, up 51.7% year over year. At the end of the same quarter, the company had $945.9 million of total outstanding debt, up 23.1% year over year. At the end of the reported quarter, debt-to-capitalization ratio was 0.29 compared to 0.22 at the end of the year-ago quarter. 

We maintain our long-term Neutral recommendation for NET Servicos. Currently it is a short-term Zacks #4 Rank (Sell) stock.