Premium channel Starz added about 500,000 new subscribers in the third quarter, driven by new original series like Outlander and soundly beating analysts’ expectations, but revenue and cash flow growth missed targets.
Starz ended the quarter with 22.5 million subscribers, an improvement of 500,000 customers and well outpacing some analyst estimates of a gain of 200,000 subscribers. Revenue in the period was up 2% to $327.2 million and cash flow grew 3% to $109 million.
While Starz said it bought back about $93.6 million worth of its stock (about 3 million shares) in the quarter (ahead of most analysts expectations, revenue at its Starz Distribution unit – which develops and acquires content for distribution via DVD, digitally and via traditional television – were down $44 million to $73.5 million in the period, mainly because there were no significant new releases from partner The Weinstein Company or of any Starz original series.
Sterne Agee analyst Vasily Karasyov wrote in a note to clients that the quarter was a mixed bag for Starz – he was encouraged by the subscriber growth, margin improvement and buyback acceleration but less excited about higher marketing costs and lower profitability at the distribution segment of the company. That led the company to miss his revenue expectations by about $6 million and his cash flow predictions by about $7 million.
“Our business continued to perform nicely in the third quarter as Starz Networks reported solid revenue, earnings growth and we reached a new high in Starz subscriptions of 22.5 million," said Starz CEO, Chris Albrecht in a statement. "We are pleased with the traction of our original programs. ‘Outlander' had a strong debut, viewership for ‘Power' finished up with great momentum and grew its viewership throughout the first season, and ‘Survivor's Remorse' continues to receive significant critical acclaim. We are very enthusiastic about our 2015 slate of original programming, which is the deepest to-date and launches with the second season of ‘Black Sails' in January. As demand for our content increases worldwide, we are providing subscribers multiple options. Recently, we confirmed details of a new partnership to offer Starz Play as a direct-to-consumer streaming SVOD service in select international markets and featuring Starz Original series."
ISI Group media analysts Vijay Jayant and David Joyce wrote in a research note that the quarter was solid but revenue was about $25 million short of their expectations, due to declines at Starz Distribution. The analysts were quick to point out those declines were not a concern “due to that stream's volatility and low margin. The core Starz Networks performance grew in-line with estimates.” They were encouraged by the subscriber growth, fueled by the popularity of Starz original series Outlander, the buyback activity and moves to expand its Starz Play app to select international markets.