) recently reported its Q1 2014 earnings per share, which grew
14% to $1.63. The company continued to add pay-TV subscribers in
Latin America (LatAm) as well as in the U.S. In LatAm, the company
added 361,000 video subscribers while it added 12,000 in the U.S.
Pay-TV continues to gain acceptance in the LatAm region as an
increasingly must-have consumer staple with the growth in
middle-class segment. It turned out to be a good quarter for the
pay-TV operators in the U.S. Comcast (
) and DirecTV added video subscribers while Time Warner Cable (
) lost fewer subscribers as compared to the recent past quarters
Comcast Adds Pay-TV Subscribers For The Second
Consecutive Quarter; Q1 Results Impressive With Strong Growth
Across The Segments
Overall, DirecTV posted good set of numbers for the first
quarter with 6% growth in revenues. However, the adjusted operating
profits (before depreciation and amortization) declined 1% to $540
million due to a slight decline in margins. Given the currency
devaluation in Venezuela, the company took a one-time charge of
$281 million on its P&L. We continue to believe that the
macroeconomic situation in the LatAm countries will weigh over the
company's performance in the near term. However, the U.S.
operations will remain stable in the near term. Looking at the
second quarter, the company stated that second quarter is always a
seasonally low quarter for the industry, and this quarter will be
no exception. However, the gross subscriber additions in Q2 are off
to a good start, according to DirecTV's management.
We currently have
$79 price estimate for DirecTV
which we will soon update based on the recent quarterly
See our complete analysis for DirecTV
How Did The U.S. Operations Pan Out?
DirecTV's U.S. operations contribute close to 60% to its value,
according to our estimates. The U.S. operations continued their
steady growth in the first quarter. The revenues and operating
profits grew by 5% to $6.09 billion and 11.48% to $1.24 billion
respectively. The churn rate was unchanged at 1.45% while the ARPU
(average monthly rate per user) increased by 4.28% to $100.16,
reflecting higher advanced receiver service fees and price
increases on programming packages.
While the satellite industry posted solid growth over the past
few years, the growing availability of online content as an
alternative video platform, along with an expanding market for
connected devices, poses a competitive challenge to the entire
pay-TV industry in the U.S. It is noteworthy that DirecTV has been
able to add subscribers in such an environment. This can be
attributed to the company's exclusive programming of
NFL Sunday Ticket,
its superior customer service, and the ongoing migration of
subscribers from cable to satellite. We believe DirecTV's U.S.
operations will remain stable in the near term. However, a lot will
depend on the renewal of its exclusive programming of
NFL Sunday Ticket
, which will expire by the end of 2014 season.
How Did Latin America Operations Pan Out?
The LatAm operations contribute around 25% to DirecTV's value,
according to our estimates. The segment revenues for the first
quarter remained at $1.72 billion while the adjusted operating
profits declined by 10% to $255 million. The pay-TV revenues
are driven by two factors, i.e., the number of subscribers and
ARPU. While the company managed to add more subscribers during the
quarter, currency fluctuation weighed over the ARPU growth. DirecTV
saw growth in local currency ARPU but that was offset by foreign
exchange headwinds. This led to a 10% decline in ARPU in terms of
U.S. Dollars. While we believe that macroeconomic volatility will
continue to weigh over the company's performance in the near term,
in the long run, DirecTV will benefit from the rising pay-TV demand
in LatAm region, due to its middle-market focused programming
packages and the popularity of its prepaid products. Moreover,
despite rapid growth in the pay-TV market, the industry largely
remains under-penetrated and offers enough room for growth.
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