Streaming And Sports Rights Will Drive Long-Term Margin Upside And Earnings Turnaround

Catalysts

About Grupo Televisa

Grupo Televisa is a leading Spanish language media and telecommunications company with cable, satellite, and streaming assets across Mexico and the U.S. Hispanic market.

What are the underlying business or industry changes driving this perspective?

• Expanding broadband penetration in Mexico, combined with a strategy focused on higher value customers, positions Televisa to capture more profitable Internet and mobile bundles, supporting steady revenue growth and structurally higher ARPU.
• Deep integration between Izzi and Sky, together with ongoing technology driven efficiencies, is driving sustained operating leverage. This should continue to lift consolidated operating segment income margins and earnings even in a low single digit revenue environment.
• Rapid adoption of streaming among Spanish speaking audiences, anchored by ViX’s growing free and premium tiers and exclusive sports and entertainment content, is set to accelerate subscription and licensing revenue while scaling a high margin DTC profit pool.
• Premium sports rights such as Formula 1, Liga MX, NFL and other marquee events reinforce Televisa’s audience share and pricing power with advertisers, underpinning stronger advertising yields and more resilient top line performance over time.
• Disciplined capital allocation, with CapEx held below 20 percent of sales and consistent free cash flow used to reduce leverage, is improving the balance sheet and lowering interest expense. This should translate into faster growth in net income and equity value.

Assumptions

This narrative explores a more optimistic perspective on Grupo Televisa compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Grupo Televisa's revenue will remain fairly flat over the next 3 years.
• The bullish analysts assume that profit margins will increase from -18.5% today to 10.2% in 3 years time.
• The bullish analysts expect earnings to reach MX$6.1 billion (and earnings per share of MX$1.53) by about December 2028, up from MX$-11.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as MX$-6.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 38.9x on those 2028 earnings, up from -2.6x today. This future PE is greater than the current PE for the US Media industry at 17.6x.
• The bullish analysts expect the number of shares outstanding to decline by 1.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.32%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Ongoing structural decline in linear pay TV and the acknowledgment that Sky is a shrinking business, with 329,000 revenue generating units lost in the quarter and management framing it mainly as a runoff cash flow stream, could keep cable and satellite segment revenue under long term pressure and cap consolidated earnings growth.
• Intensifying broadband competition and approaching full market penetration in Mexico, with rivals adding up to 1 million to 1.5 million net adds per year and Telmex holding entry prices flat while upgrading speeds, may limit Televisa’s ability to sustain subscriber growth and pricing power, weighing on long run revenue and constraining net margin expansion.
• Reliance on aggressive cost cutting and efficiency programs, such as OpEx reductions of around 7 percent at Grupo Televisa and a planned more than 400 million dollars expense cut at TelevisaUnivision, risks eventually exhausting easy savings so that future profit growth could slow once these one off benefits fade, putting pressure on operating margins and earnings.
• Secular shifts from linear to streaming and a still elevated TelevisaUnivision leverage ratio of 5.5 times EBITDA, despite recent refinancing, mean that any slowdown in ViX engagement or advertising and subscription growth could challenge deleveraging plans and increase financial risk, negatively impacting net income through higher financing costs and reduced strategic flexibility.
• Rising capital intensity to support network expansion, sports rights and streaming technology, reflected in CapEx reaching 24.3 percent of sales in the quarter and a 600 million dollars budget for 2025, could compress free cash flow if revenue growth slows or competition forces higher investment, limiting debt reduction and constraining future earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Grupo Televisa is MX$52.39, which represents up to two standard deviations above the consensus price target of MX$20.13. This valuation is based on what can be assumed as the expectations of Grupo Televisa's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of MX$55.0, and the most bearish reporting a price target of just MX$9.8.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be MX$59.5 billion, earnings will come to MX$6.1 billion, and it would be trading on a PE ratio of 38.9x, assuming you use a discount rate of 20.3%.
  
• Given the current share price of MX$10.82, the analyst price target of MX$52.39 is 79.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.