Sky chief executive Sophie Moloney. Photo / Dean Purcell
Despite a strong first half, Sky TV is still grappling with some short-term challenges, chief executive Sophie Moloney says.
The broadcaster’s Neon streaming service, which has been starved of content by the Hollywood actors and writers’ strike, saw its customer numbers fall 13 per cent from the year-ago 318,000 to 277,000 in the six months to December 31.
And Moloney told the Herald there was “continuing softness” in the second half - although with the Hollywood picket lines now lifted, “We’re hopeful that season two of House of the Dragon will be in this financial year. And in FY2025, it looks very exciting with lots of big titles like White Lotus and Handmaid’s Tale returning,” she said.
The dimming of Neon, plus what it called “economic headwinds” saw the broadcaster cut its full-year revenue guidance to $765 million to $780m (from $765m-$795m) on Neon’s issues, plus “economic headwinds”.
But the overall situation was brighter. Sky stuck to its full-year profit guidance and surprised on the upside by increasing its forecast full-year dividend from 15 cents per share (cps) to 17.5cps - ahead of analysts’ consensus pick of 16cps.
And, crucially, the broadcaster said it was still “confident” it could hit its target of bumping the profit payout to 30cps by FY2026.
Sky also announced a $15m share buyback, which will start once the current buyback (also $15m, interrupted by the lowball offer late last year), concludes.
Shares were up 2.2 per cent to $2.82 in early trading.
Jarden analyst Arie Dekker called it a “pleasing” result. He added, “There is no doubt in our view that Sky has turned a corner with stabilisation of earnings.”
But a combination of “the current economic environment”, potential impact on subs from price increases and the fact Sky is still in the midst of its capex-heavy new Sky rollout meant Jarden would not “over-interpret” the increased dividend and share buyback.
“Had Sky upgraded what look to be reasonably unambitious ebitda targets for FY2024, we think the buyback may have been a stronger signal in cash generation confidence,” Dekker said.
Earlier today, Sky reported a 3 per cent dip in customers to 1.02 million in the first half but a 4 per cent rise in revenue to $393m.
And the broadcaster had a 10 per cent rise in net profit to $29m as it extracted more money from the average subscription.
Earnings before interest, tax, depreciation and amortisation (ebitda) climbed 11 per cent to $82m.
The company’s forward-looking guidance was mixed.
“We remain on track to deliver FY24 ebitda of $150 million to $165 million and net profit of $45 million to $55 million, in line with the full-year guidance provided to the market on August 23, 2023,” Moloney said.
The firm also stood by its three-year targets, which include a 30cps profit payout by 2030.
As expected, Sky TV said it had deliberately slowed the launch of its new Sky Box and Sky Pod, giving it space to iron out teething issues. The company said there were now “significantly improved features and performance” and that it was now “confident in the new rollout settings”.
On a conference call with analysts, Moloney said 58,000 new Sky Boxes had been installed. She said the rollout would be accelerated over the next two calendar years, but would not give any specific numbers. Interim CFO James Marsh added that regardless of the rollout timeframe, the bulk of boxes would be bought from manufacturers this year.
The Sky Pod - a cheaper all-streaming device with no hard drive for recording (see the Herald’s review and Q&A here) - would help broaden Sky’s market, Moloney said.
Sky Box customers (between the new box and the old decoders) continued the recent trend toward stabilisation, dipping only slightly from 515,000 to 501,000 with revenue - $255m from the year-ago $253m also relatively stable.
In streaming, Sky Sport Now, buoyed by the Rugby World Cup, had strong customer growth with 206,000 subs versus the year-ago 148,000 as its revenue grew from the year-ago $21m to $32m and average monthly revenue per user (arpu) jumped from $37 to $40.
On the conference call, Moloney resisted analyst attempts to draw out more details around recurring subs (Sky Sport Now has weekly, monthly and annual options).
Neon saw its revenue dip from $29m to $27m with the aforementioned fall in subs from 318,000 to 277,000. Arpu was flat at $15. Sky called the launch of advertisements on Neon in January - that is, beyond the reporting period - “successful” but did not put any numbers on it.
Sky Broadband (provisioned by 2degrees behind the scenes) grew 45 per cent - off a modest base - to 30,000 households, generating $13m revenue.
Advertising revenue increased from $26m to $29m. Moloney said it was too early to give a number for ads on Neon but said digital ads were “fast-growing”.
Sky has recently moved to show more live sport free on Sky Open (formerly Prime) with Friday Night Footy for NRL and Super Rugby Saturday set to show around one game in five for each competition - live, but with ads feeding into a 12-minute delay by the final whistle.
The move plays into Sky’s twin goals of boosting ad revenue and catering to sporting codes’ desire for greater reach - particularly New Zealand Rugby (NZR) as it experiments with its new NZR+ platform (which could potentially be upgraded to showing major games live, depending on how Sky-NZR negotiations go; the current rugby contract runs through to December next year).
Moloney saw the move as bringing new fans into the fold rather than cannibalising new subscribers. “But if some of our customers are happy with one game of rugby per week” that would factor into renewal talks with NZR, she added.
Last year, Sky cut 170 local roles as call centre, tech and content roles were offshored to the Philippines and Manila. Moloney said that move had delivered the anticipated savings. No major cuts were in the works for this year.
The results also confirmed that Sky sold RugbyPass to World Rugby for $11m. The global streaming service - which Sky bought in 2019 for US$30m ($48.47m) in cash and shares and a further US$10m in earnouts had only limited subscribers and flatlined during the pandemic, with Sky writing down its value by $27.5m.
Sky said it ended the period with $47m cash on hand and a $150m undrawn bank facility.
Capex, dominated by the new Sky Box rollout, was in line with guidance.
CFO Marsh said Sky’s increase in operating costs, including programming costs, had been restricted to 1.5 per cent (to $311m) in part by the company’s “new model”. Moloney has previously said Sky is now comfortable with non-exclusive (or “co-exclusive”) deals for some content, which save the broadcaster money as it banks on the convenience of its platform to retain audience.
Sky TV shares closed Tuesday at $2.76.
The stock is up 9.5 per cent over the past 12 months.
Ahead of today’s report, Morningstar had Sky on a three-star rating with a fair value of $3.00.
Forsyth Barr had a neutral rating and a $3.05 valuation.
Jarden had the stock at overweight with a $2.93 target.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
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