) recently reported its Q2 2014 earnings, which grew 35% to
$1.59. The satellite operator saw a solid growth in Latin America
due to high demand for the FIFA World Cup. The company's U.S.
operations also trended well in the quarter and it lost only 34,000
pay-TV subscribers as compared to 84,000 it lost in the prior year
period. The overall revenues were up 5% while net income grew by
22% to $810 million.
We continue to believe that Latin America will drive growth for
DirecTV in the coming years. However, the impact of foreign
exchange will weigh over the earnings in the near term. The U.S.
operations will remain stable in the coming years driven by growth
in monthly subscription fees.
We currently have
$91 price estimate for DirecTV
, which we will soon update based on the recent quarterly
See our complete analysis for DirecTV
Latin America Sees Strong Subscriber Growth
The Latin America operations contribute close to 20% to
DirecTV's value, according to our estimates. The segment revenues
for the second quarter grew 6% to $1.79 billion and operating
profits increased by 2% to $142 million. If we exclude the foreign
exchange impact, the revenues grew by 27% in the quarter. The
company benefited from high demand for the FIFA World Cup and added
543,000 net subscribers during the quarter. This is far better than
165,000 subscribers it added in the prior year quarter. However the
subscription fee declined by 4% to $48.88 as growth in local
currency was offset by foreign exchange headwinds.
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 the
region. The company's popular prepaid packages and advanced HD/DVR
services will help it gain market share. It must be noted that
despite rapid growth in the pay-TV market, the region largely
remains under-penetrated and offers enough room for growth.
Accordingly, we estimate that DirecTV's Latin America revenues
will double to $14 billion by end of the decade.
U.S. Pay-TV Subscribers Declined at a Slower
The U.S. pay-TV revenues and operating profits grew by 6% to
$6.27 billion and $1.32 billion respectively in the second quarter.
The churn rate was at 1.55%, slightly higher than 1.53% witnessed
in the prior year quarter. Average monthly subscription fee
increased by 5% to $103.26, reflecting price increases on
programming packages and higher advanced receiver service fees.
DirecTV has seen solid growth in its U.S. operations over the
past few years driven by subscriber addition and higher
subscription fees. The company managed to attract more customers
and consistently increase subscription prices primarily due to its
exclusive programming of
NFL Sunday Ticket
. However, the deal with NFL will expire after 2014 season. The
company's management in its latest earnings call stated that it is
confident of renewing the deal with NFL. Separately, it has began
offering NFL streaming services over the Internet (Read More -
DirecTV Expands its NFL Package by Offering
While DirecTV posted subscriber 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. However, we believe DirecTV's U.S. operations will
remain stable in the near term due to its exclusive programming. A
lot will depend on the renewal of its deal with NFL. If the deal
doesn't go though, DirecTV will lose its exclusivity and can face
higher churn rate. It must be noted that the U.S. pay-TV operations
contribute more than 65% to DirecTV's value, according to our
estimates. Given the high value contribution, any change in drivers
such as number of subscribers and monthly subscription fees will
have a meaningful impact on DirecTV's price estimate.
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