Watch out below! The Sky Network Television Ltd (ASX: SKT) share price is plunging.
What happened?
Earlier today, New Zealand's leading pay television provider updated the market on its expected operating profit for its current financial year that is due to end 30 June 2017. The company said that it's forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) to be between 5% and 7% below the $296 million it forecast to the market on 13 June 2016.
The lower end of the company's range would imply an EBITDA figure around $275 million. In other words, around 15% below the company's EBITDA in 2016 and 27% below 2015's result of $379 million.
"Based on SKY's trading results to 30 November, forecast revenues are down slightly due to a reduction in subscriber numbers and a change in customer mix," the company's announcement read.
"Sky continues to focus on providing customers with superior content and the decline in forecast EBITDA is also due to increased content costs, including the acquisition of rights to broadcast the 2017 America's Cup, Lions Tour to NZ and PGA golf."
As an aside, Sky Network issued two statements to the market today. The second "amended" version (which corrected a version published 40 minutes earlier) included the following paragraph:
"We also note that SKY updated the market on 20 October 2016 in relation to an error in its depreciation, amortisation and impairment forecast for the year ended 30 June 2017 and that this should be $109.1 million rather than the $101.3 million included in the EM [Explanatory Memorandum]".
Foolish takeaway
Sky Network's business is being challenged by online streaming services (such as Netflix and YouTube) in much the same way as local providers such as Foxtel, which is owned by Telstra Corporation Ltd (ASX: TLS). While the business appears to be well run, I think there are better opportunities for investors on the ASX.
