Revenue decline accelerated in Q2 as the cost-of-living crisis appears to be impacting UK sales, but profits remained strong thanks to last summer’s Continental sports rights reset
In Italy, DAZN will return on Sky’s platform just in time for the new Serie A football season, filling a key gap in its aggregation strategy
Looking forward, thanks to its enhanced profitability, Sky has the flexibility to respond to the economic downturn using pricing and content
BT Group’s revenue growth surged in Q1 to 1%, the first time it has been positive in five years, with a stronger than expected boost from the April price rises partially offset by the Virgin Mobile MVNO loss.
EBITDA growth, however, actually dipped to 2%, with little operating leverage due to cost pressures, although the company is still very confident in its full year EBITDA guidance (which implies 4% growth).
BT is far from immune to macroeconomic pressures, with pressure on costs, corporate revenue and signs of a sharp dip in broadband market growth, but it is well placed to deal with them given strong growth at Consumer and Openreach.
YouTube’s tepid quarter signals a two-track online ad economy with advertisers protecting search spend as an essential cost of sales while cutting online display.
YouTube faces a challenge to strengthen its brand and direct response ad products while sacrificing some income to Shorts, its answer to competition from TikTok, which we estimate added three times as much ad revenue as YouTube in H1.
Beyond the short term, brands need to generate new demand, and that cannot be accomplished at the bottom of the funnel.
UK altnet full fibre rollouts are accelerating, with an aggregate build pace close to that of Openreach, but customer acquisition is not growing at the same pace, and overbuild in the most attractive areas is becoming a significant issue.
Altnet business models remain challenging and are getting worse as Openreach builds out, and (although there are some notable exceptions) most will need to rapidly achieve scale and turn around their performance to survive.
Consolidation is very likely, along with business failures, and while some market share loss for Openreach looks likely as serious scale players emerge, the downside is limited, and even more so for retail ISPs.
European mobile service revenue growth was positive for the first time in five years this quarter as a resurgent mobility boost combined with the return of roaming revenues.
Q2 is set to be a mixed bag, with inflation-plus price increases expected in the UK, an elevated boost from the roaming recovery, but also some weakness in the B2B market.
We are also seeing the early impact from end-of-contract notification rules, particularly in Germany, and we expect ARPU pressure and churn to pick up elsewhere as the impact becomes more widespread.
The market looked superficially healthy in Q1, with revenue and broadband volume growth both maintained at 2%.
However, net adds trends suggest that consumers are becoming more bargain seeking, and prices have become more competitive into Q2.
The April price increases will support growth in the short term, but this boost may not last long if the cost-of-living crisis persists.
BT’s Q4 was mixed in the detail, with consumer broadband volumes weakening but FTTP roll-out and adoption surging, with performance at the Group level solid enough.
The April price increase has reportedly landed well, strongly supporting BT’s guidance for revenue and EBITDA growth in 2022/23 with no other improvements required.
The macroeconomic environment continues to weaken, affecting BT and its premium brands in a number of ways, but it appears to have enough room in its guidance to weather this storm.
Sky continued to grow its UK revenue thanks to price rises, mobile customer additions, and a rebound from lost hospitality business in early 2021, but this was still outweighed by the recent reset of its Italian operation
Aggregation remains a core focus, with Paramount+, and Magenta Sport in Germany, added to Sky’s bundles, while fibre rollout will intensify with the launch of Sky Stream puck as a standalone device later this year
Declining buying power raises uncertainty over consumer behaviour: in previous recessions, pay-TV performed well, but today subscribers have more video options than ever before
European mobile revenue growth was zero for the third successive quarter with better mobility but less roaming upside, some B2B weakness, and stronger competitive intensity in the Italian and Spanish markets
Q1 should evidence some similar trends but the impact of out-of-contract notifications will begin to emerge and roaming looks set to become a significant boost from Q2
Consolidation fever continues to dominate the headlines though this is set against a backdrop of considerable uncertainty regarding regulatory approval