Telefonica receives bullish update from Jefferies

Market analyst Jefferies International has issued an upbeat assessment of Telefonica’s global strategy as the company heads into the third quarter.

Rating the company’s stock as a buy, it said the company is performing well both in Spain and Latin America. It added that Telefonica’s Spanish pay TV platform Movistar has managed to differentiate itself well from rivals and is yet to see any impact on its subscriber base as a result of emerging skinny bundles/SVOD.

According to Jefferies, the summer in Spain has been characterised by heavy discounting by Telefonica and rival Vodafone Spain. As a result, Telefonica has seen significant additional demand for higher-tier packages.

Vodafone is attempting to challenge Telefonica/Movistar on the movies and series front, but Jefferies questions its ability to do so with its restricted content line-up.

“Vodafone lacks access to Telefonica’s popular originals (12-15 series per annum). It also lacks on-demand/catch-up access to the Movistar Series/Cine content. As for content from other producers, Telefonica says cost per user models are prevalent and that Vodafone’s limited scale (it current has a third of Telefonica’s TV base) may undermine its bargaining power.”

Summarising Telefonica’s view on skinny bundles, Jefferies said: “TEF argues that its content line-up undermines the business case for OTT challengers. It suggests that Sky has failed to gain traction due to a lack of relevant content.”

Netflix is a potential threat, but Telefonica says that consumers are currently seeing it as a complementary product.

As for LatAM, Jefferies says Telefonica is well positioned to take advantage of OTT growth: “Low credit card (<30%) and pay TV (<30%) penetration make it difficult for OTT providers to reach a critical mass without a distribution partner.

“With direct access to 160 million mobile users, Telefonica has the ability to provide such a distribution platform. It targets 20-30 million registered OTT subscribers with its Movistar Play service by 2021, a 10-20-times increase versus August 2018.”