Cord Cutting And European Competition Will Undermine Legacy Networks

Key Takeaways

• Shrinking legacy video revenues and intense competition from low-cost rivals are steadily eroding pricing power, compressing margins, and increasing subscriber churn.
  
• Heavy investment needs, rising debt costs, and tightening regulations are straining earnings, cash flow, and long-term growth flexibility across core markets.
  
• Strategic asset reorganization, disciplined capital allocation, and network investments are driving value creation, diversification, and a focus on sustainable cash flow and higher investor returns.

Catalysts

Provides broadband internet, video, fixed-line telephony, and mobile communications services to residential and business customers.

• Ongoing cord-cutting and the rapid migration of consumers from traditional cable TV to streaming and over-the-top services is accelerating, directly eroding Liberty Global's legacy video revenue base. As a result, future top-line growth is likely to be structurally constrained, and further declines in ARPU and churn increases will compress revenue and net margins across core markets.
  
• The proliferation of low-cost competitors and agile alternative network providers in key European regions-especially the U.K. and the Netherlands-continues to fuel intense price-based competition. Aggressive churn incentives and price competition threaten to further undermine Liberty Global's pricing power, resulting in ongoing subscriber attrition and margin pressure over the long term.
  
• Despite investments in network upgrades like DOCSIS 4.0, ongoing technological shifts demand substantial and recurring capital expenditures to keep pace with full-fiber and cloud-native architectures. These upgrades create persistent free cash flow pressure and expose legacy hybrid and coaxial cable networks to obsolescence risk, thereby straining earnings and limiting future shareholder distributions.
  
• Leveraged capital structures at Liberty Global's key operating companies-combined with a backdrop of rising interest rates and tightening credit conditions-will drive up the cost of capital and create significant refinancing risk. Higher debt servicing burdens are likely to dilute earnings and force deleveraging actions that could constrain strategic flexibility and limit reinvestment for growth.
  
• Increasing regulatory scrutiny across Europe on telecom pricing and data privacy, coupled with ongoing commoditization of broadband access, is set to further reduce ARPU potential and raise compliance costs. This environment will continue to erode net margins, depress long-term profitability, and hinder Liberty Global's ability to differentiate or achieve sustainable revenue growth.

Liberty Global Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Liberty Global compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Liberty Global's revenue will decrease by 1.8% annually over the next 3 years.
• The bearish analysts are not forecasting that Liberty Global will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Liberty Global's profit margin will increase from -70.2% to the average US Telecom industry of 12.7% in 3 years.
• If Liberty Global's profit margin were to converge on the industry average, you could expect earnings to reach $558.7 million (and earnings per share of $2.02) by about August 2028, up from $-3.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.3x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the US Telecom industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 6.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.62%, as per the Simply Wall St company report.

Liberty Global Future Earnings Per Share Growth

Risks

• The company is executing strategic corporate actions such as portfolio rotations, asset spin-offs, tracking stocks, and IPOs with the intention of unlocking value and eliminating the conglomerate discount, which could lead to a higher valuation and uplift in share price as assets become more transparently valued and attractive to local and European investors, supporting long-term total shareholder return.
  
• Ongoing investments in fiber and 5G network upgrades, cost-efficient DOCSIS 4.0 deployment (notably in the Netherlands at 90% cheaper than full fiber rollouts), and continued focus on network quality and geographic expansion position Liberty Global to benefit from secular increases in data consumption, which is likely to sustain or grow revenue and support margins over time.
  
• Capital allocation discipline, including substantial share buybacks (approximately 3% of shares recently repurchased) and targeted asset sales with proceeds used for deleveraging and EPS accretion, signals a management focus on maximizing shareholder value and managing financial risk, positively impacting earnings per share and long-term capital returns.
  
• The company's growing Enterprise/B2B platform, exemplified by Liberty Bloom targeting $1 billion of revenue with strong EBITDA growth, and the data center investments in AtlasEdge and EdgeConneX, create new high-growth, high-margin revenue streams, which could diversify earnings and transform the company's financial profile towards higher recurring cash flows.
  
• Strategic moves toward increased free cash flow generation at operating companies are underway, with anticipated declines in capital expenditure at Telenet and Virgin Media Ireland as 5G/fiber rollouts mature, and additional cost optimization at the corporate level. This creates a path for sustainable dividend strategies and better net margin profiles, enhancing long-term investor appeal and potentially boosting the share price.

Valuation

• The assumed bearish price target for Liberty Global is $9.9, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Liberty Global's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $9.9.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $4.4 billion, earnings will come to $558.7 million, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 8.6%.
• Given the current share price of $11.03, the bearish analyst price target of $9.9 is 11.4% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.