) will report its Q4 2012 and full year results on February 14 and
besides strong subscriber additions in the U.S., Latin American
growth will be in focus. The company's revenues in the U.S. will be
aided by subscriber growth and higher ARPU (average revenue per
user) due to a price increase. As far as Latin America is
concerned, subscriber growth is the primary growth driver as the
pay-TV market in this region remains underpenetrated. As far as
levying extra sports fee is concerned, the effect won't be visible
as it was introduced towards the year-end and the fee applies to
only new customers (for details see
The Impact Of DirecTV's Extra Sports Fee
). In addition to this, we'll keep an eye out for the trend in
programming costs which are resulting in margin pressure across the
See our complete analysis for DirecTV
Pay-TV Business In The U.S. - What To Expect?
DirecTV already disclosed that it added 100,000 net subscribers
in the U.S. in the fourth quarter of 2012. This brings the
company's total net adds for 2012 to 196,000, which we expect to be
significantly higher than the expected net adds for its competitor
Dish Network (
). Compared to the cable companies who are losing subscribers,
DirecTV's performance is stellar. Furthermore, the performance is
commendable given that the U.S. pay-TV market is highly saturated.
However, if we compare DirecTV's subscriber performance in 2012
against 2011, we note that there was a substantial decline.
However, the company has an opportunity to continue its gains as
the telcos have slowed down their pace of expansion. As far as
revenue growth is concerned, subscribers are not the only way to
go. DirecTV continues to expand the penetration of advanced
services such as DVR, HD and on-demand video. In addition, the
company periodically raises prices. We note that DirecTV resorted
to 4% price increases in 2011 and 2012 and starting from February
2013, the prices will go up again by 4.5%. The impact of the price
increase will be visible in this quarter's revenue growth.
DirecTV's Programming & Distribution Advantage Is
Helping It Over Dish
There is a reason why DirecTV is expected to perform better than
Dish and has been doing so for the past few years. DirecTV has a
greater number of HD channels with more emphasis on sports compared
to Dish Network. HD and sports channels cost more and attract
subscribers who have a better spending capacity. This, in turn,
lowers the churn as DirecTV can market additional services such as
whole-home-DVR to these customers, and they tend to be stickier.
Until last year, DirecTV spent about
$1 billion a year
on NFL programming, making its flagship NFL Sunday Ticket
out-of-market sports programming package available to its
subscribers. This has been a unique selling point for the company.
Out-of-market sports programming enables viewers to watch games of
teams that are not local to their area of residence. In addition to
programming advantage, DirecTV also has a distribution advantage.
Dish Network lost its key distribution partners such AT&T (
) and CenturyLink to DirecTV in the past.
Latin America - Subscriber Growth Will Continue But Watch
Out For Churn
DirecTV added close to 1.08 million gross subscribers and
543,000 net subscribers in Latin America (excluding Sky Mexico) in
Q3 2012. While gross subscriber additions were up 13%, net
subscriber additions were slightly down due to a higher monthly
churn. This higher churn resulted from increased penetration of
middle market products, especially in Brazil.
We expect the growth to continue this quarter but some of it
might be hampered by increased churn. The middle market customers
in Latin America are value conscious and are likely to be less
sticky than those opting for higher priced packages. This means
that cost savings, in tandem with high quality service, is likely
to be the primary growth driver for pay-TV services in this region.
Such cost savings can be achieved through bundled offerings where
DirecTV is lagging currently. The company has been
contemplating acquisitions and expanding its satellite broadband
service, which would help strengthen its competitive position. It
has already started its broadband service but having a cable
partner will help in providing viable bundles to its customers.
Our price estimate for DirecTV stands at $59, implying a premium
of about 15% to the market price.
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DirecTV says it added 100,000 subscribers in fourth