DIRECTV Beats on Subscriber Growth - Analyst Blog

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DIRECTV ( DTV ), the largest satellite TV operator of the U.S., delivered excellent fourth quarter 2011 financial results today before the opening bell. The solid result was primarily attributed to the combined effect of strong net customer additions, increased average revenue per user (ARPU) in the U.S. segment and significant margin expansion.

In synergy with the encouraging performance, the company announced a new $6 billion share buyback plan.

Total revenue in the reported quarter came in at $7,463 million, up 12.7% year over year, and ahead of the Zacks Consensus Estimate of $7,398 million.

Quarterly GAAP net income was $718 million or $1.02 per share compared with $618 million or 74 cents per share in the year-ago quarter. Quarterly EPS of $1.02 per share was significantly ahead of the Zacks Consensus Estimate of 91 cents per share.

Quarterly operating profit before depreciation & amortization (OPBDA) was $1,782 million, up 5.8% year over year. Operating profit in the reported quarter stood at $1,214 million, up 14.3% year over year.

At the end of fourth quarter 2011, DIRECTV generated $5,185 million in cash from operations compared with $5,206 million in the prior-year period. Free cash flow (cash flow from operations less capital expenditures) in the reported period was $2,261 million compared with $2,903 million in the year-ago quarter.

At the end of the fourth quarter of 2011, DIRECTV had $873 million in cash & cash equivalents and $13,464 million of outstanding debt on its balance sheet compared with $1,502 million in cash & cash equivalents and $10,472 million of outstanding debt at the end of fiscal 2010.

DIRECTV U.S. Segment

Revenue from this segment was $6,029 million, up 9% year over year on the back of strong subscriber base and significant ARPU growth. Quarterly ARPU was $101.38 versus $96.64 in the prior-year quarter. Growth in ARPU was mainly fueled by higher sales of NFL Sunday Ticket and increased demand for premium services.

Quarterly operating profit before depreciation & amortization dipped 0.2% to $1,327 million, primarily due to higher promotional expenses. However, adjusted operating profit climbed 11.8% to $965 million.

Average monthly subscriber churn rate in the reported quarter was 1.52% compared with 1.44% in the prior-year quarter. Quarterly net subscriber addition was 125,000 compared with 289,000 in the year-ago quarter. As of December 31, 2011, DIRECTV U.S. had 19.89 million subscribers, up 3.5% on a yearly basis.

DIRECTV Latin America Segment

Segment revenue was $1,372 million, up 33.1% year over year,on account of record subscriber growth. Quarterly ARPU was $60.41 versus $61.12 in the prior-year quarter, primarily driven by foreign currency fluctuation. Quarterly operating profit before depreciation & amortization increased 23.4% to $422 million and operating profit jumped 18.9% to $220 million.

Average monthly subscriber churn rate in the reported quarter was 1.65% compared with 1.55% in the prior-year quarter. Quarterly net subscriber addition was 590,000 compared with 378,000 in the year-ago quarter. As of December 31, 2011, DIRECTV Latin America had approximately 7.87 million subscribers, up 35.5% year over year.

Sports Networks, Eliminations and Others

Revenue from this segment in the reported quarter was $62 million versus $59 million in the prior-year quarter. Quarterly operating profit before depreciation & amortization in the fourth quarter of fiscal 2011 was $33 million versus $18 million in fourth quarter of fiscal 2010. Operating profit in the reported quarter was $29 million versus $14 million in the last quarter.

Recommendation

Solid fundamentals and strong share re-purchase plans coupled with huge subscriber growth across all its segments make the company quite popular within the pay-TV industry.

However, within the satellite TV industry, DIRECTV is facing intense competition from its nearest rival DISH Network ( DISH ). Furthermore, U.S. telecom giants, AT&T ( T ) and Verizon Wireless ( VZ ) are increasingly rolling out their fiber-based network in order to provide video services. Additionally, the newly developed Internet video streaming companies like Netflix , Inc. ( NFLX ), Hulu and YouTube have become major threats to the overall pay-TV industry.

We, maintain our long-term Neutral recommendation for DIRECTV. Currently, DIRECTV has a Zacks #3 Rank, implying a short-term Hold rating on the stock.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DISH , DTV , NFLX , T , VZ

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