BSkyB has posted a two-fold increase in annual profits and announced a new strategic plan, but investors have slammed the stock after the pay-TV firm disclosed lacklustre fourth-quarter subscriber growth.
At 8:20 this morning, BSkyB shares were down 7.23 percent at 558-1/2 pence, the biggest drop on the FTSE 100 index.
"Hedge funds that bought stock during Goldman's placing last week are dumping it this morning after the subscriber numbers undershot expectations," said another.
BSkyB added 81,000 subscribers in the fourth quarter for a total of 7.4 million. It needs an average of 100,000 per quarter to reach its target of 8 million subscribers by the end of 2005.
BSkyB, partially owned by media conglomerate News Corp, said its pretax profit excluding exceptional items for the year to June 30 was £514 million sterling (€774 million), from £253 million a year earlier.
Nearly a year after James Murdoch, son of News Corp boss Rupert Murdoch, took the reins at Europe's most profitable satellite broadcaster, investors were eager for details of his plans to maintain profit and subscriber growth.
On Wednesday, Murdoch set a goal of 10 million subscribers in 2010, with 30 percent having more than one Sky set-top box and 25 percent having a Sky+ digital video recorder. Currently, four percent of subscribers have multiple set-top boxes and five percent have Sky+.
To find new subscribers, Sky will boost its marketing budget by 40-50 percent next year.
It warned that the cost of acquiring new subscribers will increase "marginally in the short term and by around 10 percent in the medium term." It expects operating margins to decrease in 2006, and to expand from 2007 onwards.
Sky is Britain's dominant digital-TV provider but its lead has been challenged by Freeview, the free-to-air service championed by the BBC which has quickly gained about 3.5 million subscribers. BSkyB is a partial owner of the service.
The company, which is throwing off increasing amounts of cash after placing an expensive bet on digital TV, also announced a new financial strategy to return surplus capital to shareholders in addition to its ordinary dividend. It plans to make additional capital investments of up to £450 million (€681.7 million) over the next four years, and will propose a plan to buy back up to five percent of shares each year.
Analysts on average expected a pretax profit of £498.4 million (€755 million), according to a Reuters poll, with estimates ranging from £465.4-513.8 million.
BSkyB has been dogged by doubts about its ability to simultaneously grow its subscriber base and maintain the high level of fees its receives per subscriber, and by criticisms of its corporate governance. Its shares have underperformed peers in the European media sector and the FTSE Index in the past 12 months.
Earlier this year James Murdoch announced plans to launch a bare-bones free satellite TV platform, but analysts don't expect it to result in immediate gains for Sky.