NENT’s Q1 results were above consensus expectations, apart from its Viaplay OTT service. According to investment bank Berenberg, the Nordic Entertainment Group’s operating margin of 7 per cent was also materially above expectations, leading to a significant outperformance at the EBIT level.
The miss on Viaplay net sales was due to average revenue per user (ARPU) falling below consensus primarily as a result of:
1) B2B-driven subscriber growth and
2) a high proportion of basic TV & Movies subscriptions in the subscriber growth mix. This effect should be temporary as price increases take full effect in Q2, suggests the bank.
“NENT Group reported 127,000 net new paid Viaplay subscriptions in Q1, almost all of which were Nordic subscriptions – the Baltic launch was only a few weeks before the end of the quarter and involved a two-week free trial. This suggests that the company’s 400,000 additional Nordic subscriptions guidance in FY 2021 is a conservative outlook, but given lingering market uncertainty about the impact on subscriber growth of restrictions easing through the year, management was not tempted to increase the formal outlook. Instead, the language used to describe the outlook was tweaked, with the outlook now for ‘at least’ 400,000 Nordic subscriber additions and ‘at least’ 250,000 international subscriptions,” stated Berenberg.
There are positive signs in its core Baltic market, says the bank: “As expected, Q1 results were too early to give international subscriber and sales figures, but management affirmed that the launch is progressing well. Of the two B2B deals agreed in the Baltics, a free Viaplay trial has been launched by one (Tet, Latvia), while the other (Elisa, Estonia) will roll out its free trial in tandem with the start of the football season. We are therefore reassured that after a good launch, there will be a further subscriber bump in Q3 as football fans are enticed by a combination of the free trial and the Bundesliga and Champions League.”
The bank’s overall view for NENT remains positive, and the Berenberg report said that NENT has many more levers to pull in regard to its activities in Poland: “Following the results, we hosted NENT management for a global (ex-Nordics) fireside chat, at which our positive outlook for NENT was reaffirmed, particularly with regards to the prospects in Poland – a market about which we are particularly bullish. Based off existing content, and assuming no B2B deals are agreed in Poland before the launch, we would still expect early demand for the product to be high. Add to this the fact that NENT is highly likely to reach distribution agreements with Polish broadcasters and will invest in Polish original content, we expect an outperformance compared to current expectations. We nudge our international subscriber forecast up to 340,000 and maintain the 425,000 net Nordic subscriber additions forecast for FY 2021.