Over the last few years, online video-sharing and content platforms have taken the world by storm.
For example, Netflix Inc (NASDAQ: NFLX) and Alphabet Inc’s (“Google”) (NASDAQ: GOOGL) YouTube are common pastimes in today’s world.
The COVID-19 pandemic has hastened the shift to online content as people spend more time indoors.
This shift has affected traditional cable television providers such as StarHub Ltd (SGX: CC3).
Year to date, the telecommunication company’s (“telco”) share price has fallen by slightly more than 7% to S$1.32 from S$1.42.
Having said that, cable TV is but one of the services provided by the Singaporean telecommunications giant.
Earlier this month, StarHub announced a business update for its third-quarter earnings.
We break down StarHub’s report to decipher how its individual business segments have fared in the third quarter of 2020.
Overall business
StarHub announced a 23.3% drop in net profits to S$44.5 million during the quarter, down from S$58.0 million a year back.
Revenue also declined by 14.5% to S$490 million from S$573 million.
Out of the S$83 million fall in revenue year on year, S$37 million can be attributed to a fall in sales of equipment, while the remaining S$46 million was due to a fall in service revenue.
In the third quarter of 2020, sales of equipment accounted for S$101 million of revenue while services accounted for the remaining S$389 million.
It is important for investors to understand all the different services provided by Starhub before investing.
They are mobile, pay-tv, broadband, and enterprise.
Each segment contributed to 34.5%, 12.1%, 11.7%, and 41.7% of service revenue respectively.
Key metrics
Before delving into StarHub’s individual service segments performance, here are the explanations for some key metrics used.
Churn rate is the percentage of service customers who discontinued their subscriptions within a specific time period.
Average revenue per user (ARPU) represents the total revenue divided by the total number of subscribers.
Mobile
Mobile services revenue fell by 29.4% to S$134 million, a steep drop from S$190 million a year back.
Due to a drop in tourist numbers, prepaid ARPU and subscriber count were both lower than the previous year.
Prepaid ARPU fell to S$12 from S$13 and subscriber count dropped to 526,000 from 785,000.
A greater cause for concern was the 26.9% fall in ARPU to S$29 from S$39 for post-paid services.
Although both post-paid subscriber count and churn rate showed slight improvements, they were not enough to pull up the mobile services revenue.
Post-paid subscriber count inched upward by 0.8% year on year to 1.45 million while churn rate improved to 1.0% from 1.6%.
Pay TV
Pay TV, StarHub’s television subscription service, saw a 16% year on year decline in revenue to S$47.1 million from S$56.1 million.
ARPU remained relatively constant at S$40, falling just slightly by 0.4% year on year.
Churn rate showed signs of improvement, decreasing to 0.7% from 2.2%.
However, subscriber count continued to decline and was down by 7.3% to 321,000 from 347,000 a year back.
StarHub’s management team credited the poor performance to cable-to-fibre migration in the fiscal year 2019.
The attrition has so far continued unabated, and investors will be watching subscriber numbers closely in the following quarters.
Broadband
StarHub’s broadband service offered some respite, reporting a 5.5% year on year growth in revenue to S$45.5 million from S$43.2 million.
The higher consumption of data in homes due to the COVID-19 pandemic gave StarHub the ability to reduce the subscription discounts it extends to customers.
Both ARPU and churn rate showed improvement.
ARPU grew by 8.2% to S$30.0 from S$27.0 year on year, while churn rate dropped to 0.6%
from 0.9%.
Subscriber count experienced a small 1% decline to 500,000 from 505,000.
Enterprise
StarHub’s enterprise business was another segment that softened the pandemic’s blow.
The division consists of network solutions, cybersecurity and regional information and communications technology (ICT) services.
Year on year, revenue grew by 11.3% to S$162.0 million from S$145.5 million.
While this is encouraging, it should be noted that S$17.6 million of the latest quarter’s revenue can be attributed to the acquisition of ICT services on 30 July 2020.
Stripping this out, the enterprise segment would have reported a 0.76% decline in revenue compared to the previous year.
Within this small decline in revenue, there was a fall in revenue for network solutions to S$98.5 million from S$102.8 million and an increase in revenue for cybersecurity services to S$45.8 million from S$39.8 million.
According to management, the former occurred due to delays in managed services projects and lower demand for voice services amid the pandemic.
The latter was the result of increased demand for cybersecurity options due to digitalisation trends.
StarHub has reported a downbeat set of earnings.
But as hopes of an effective vaccine rise, along with the impending announcement of Singapore’s Phase III reopening, the telco could see better days ahead.
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Disclosure: Zachary Lim does not own shares in any of the companies mentioned.
