DirecTV Earnings Preview: ARPU Trend and Subscriber Growth in Focus

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DirecTV ( DTV ) plans to report its Q2 earnings on Thursday, August 4th, and there are certain factors that we believe investors should look for during its earnings announcement. Although DirecTV has done well compared to its rival Dish Network ( DISH ), competition is increasing from other service providers such as AT&T ( T ) and Verizon ( VZ ). As fiber-optic services and bundled packages gain popularity, DirecTV could see this weigh on its subscriber growth and average revenue per user (ARPU) trends, and so we will watch these two areas in addition the growth in DirecTV's Latin America business closely.

Our price estimate for DirecTV is near $50 , which is about in line with the market price.

Subscriber Additions Important, But Watch Out for ARPU Trend

Although DirecTV had healthy subscriber additions in last quarter (Q1, 2011), there is no guarantee that this quarter will be the same. Competition is fierce and there are aggressive cash back offers, triple play bundle promotions without contractual commitments and lower entry price points that might weigh on subscriber additions. In this environment, we could see ARPU under pressure. This figure has been growing for the past few years, and we expect it to continue to grow in 2011 and so any signs of weakness here would be a cause for concern.

Latin American Growth

In early June, DirecTV announced that it crossed its 10 million subscriber mark in Latin America. If we exclude Sky Mexico, which is accounted for under the equity method, we note that in first half of the year the company's Latin American subscriber base has increased by about 0.8 million. This implies that our 2011 forecasts may turn out to be relatively conservative, we will likely need to increase Latin American subscriber growth forecasts during earnings update. We will keep an eye out on company's expectations for the later half regarding this matter. We currently estimate that Latin America accounts for just under 20% of DirecTV's stock value.

See our complete analysis for DirecTV's Stock



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 , Investing Ideas , Stocks , US Markets

Referenced Stocks: DISH , DTV , T , VZ

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