Liberty Global Upgraded to Neutral

We upgrade our recommendation on Liberty Global Inc. (LBTYA) to Neutral based on our view that the company is gradually establishing its strong foothold in the European cable MSO market. Though the companys second quarter of 2012 financial results fell below the Zacks Consensus Estimates, Liberty Global added a net 364,000 organic revenue generating units, up by a whopping 61% year over year. Despite the fact that the companys second quarter always remains seasonally weak, operating metrics appeared strong.

We believe the long-term business fundamental of the company is very intriguing, primarily due to strong demand for its digital cable TV service, faster broadband, and triple-play bundled offerings. Chellomedia, the international content division of Liberty Global, recently completed two vital deals.

Chellomedia has bought 13 movie channels of Metro-Goldwyn-Mayer Studio Inc. in Europe, the Middle East, and Latin America. It also acquired the remaining 50% stake of its MGM Latin America venture and the remaining 49% stake of its MGM Central Europe venture. The second deal was the extension of its existing relationship with CBS Corp. (CBS).

Liberty Global has recently launched a hybrid IP video gateway called Horizon TV in the Netherlands. This innovative IP gateway will combine cable operators video services with web-based content through an integrated cable modem. Horizon runs on Atom CE processor of Intel Corp. (INTC).

The new web-based hybrid modem includes an open software developer platform and application store. Furthermore, customers can share TV showing in multiple screens such as computers, Apple Inc. (AAPL) developed iPhones and iPads. Horizon TV also features an in-build application store for YouTube, Wikipedia and Facebook. This service will be extended in Switzerland, Germany, and Ireland within the next 3-6 months.

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Liberty Global Upgraded to Neutral