Shares in Sky Network TV fell back to Earth yesterday after the company said its subscriber numbers were expected to fall further this financial year.
In a statement to the NZX, Sky said its total subscribers were likely to hit 830,000 by June 30, with a reduction of about 45,000 core residential Pay TV subscribers for the financial year partially offset by an increase in other subscribers, including Neon and FanPass.
Sky said the loss of subscribers would adversely affect its full-year 2017 earnings, compared to current analyst consensus estimates.
Buoyed by what fund managers said was buying by exchange traded funds (ETFs), the stock rallied by just under $1 from $4.56 on April 11 through to Thursday, when it hit $5.55.
But yesterday's subscription update injected some reality back into the equation, and the company's stock closed down 86c at $4.63.
Salt Funds Management managing director Matt Goodson said Sky had been singled out for some "robotic" dividend-related ETF buying in recent weeks.
"Clearly this number was worse than expected and the stock has given up a lot of those gains that arose from the 'forced' type of buying from the ETFs," Goodson said.
"They have challenges and it appears that their audience is disaggregating somewhat," he said. "How they deal with that will be interesting to see, but the basic problem appears to be that they are having to charge too much for the non-rugby/sport packages in order to pay the ever-escalating costs of sports rights, but losing the audience that is not interested in watching those [sports] rights."
Sky said it expects about 25,000 subscribers for its online services such as Neon and FanPass.
The company retained its forecast for 2016 earnings, which it said in February would see net profit at the lower end of its previously advised range of $153 million to $158 million, down from $172 million last year.
Analysts expect the company's net profit to fall to $155 million in 2016, and decline further to $146 million in 2017, according to the mean forecast in a Reuters survey.
Sky is losing its hold on premium content with the introduction of online streaming video services such as Netflix and Lightbox.
Still, it retains rugby rights, which are seen as a linchpin in securing domestic viewers. The company attributed the forecast loss in subscribers for this year in part to the roll-off of subscriber contracts following the Rugby World Cup in 2015.
It didn't expect the rate of subscriber loss this year to continue next year, given customer departures are reducing due to the diminishing impact of the Rugby World Cup, and because it expects a subscriber lift from upcoming major sport events including the Rio Summer Olympics in August this year and the Lions tour in June next year.
Sky TV said it expects to provide an update on capital management and growth initiatives by June 30, after appointing investment bank Citigroup to provide advice.
- additional reporting: BusinessDesk