We reiterate our long-term Neutral recommendation on
). The company reported weak financial results for the second
quarter of 2013. While total revenue marginally beat the Zacks
Consensus Estimate, net earnings significantly fell below the
same. DIRECTV currently has a Zacks Rank #3 (Hold).
Why Kept at Neutral?
DIRECTV has improved its subscriber quality - i.e. shrank the
proportion of subscribers with low credit ratings - by
restructuring dealer incentives (changed the commission and
penalty structure), cutting the proportion of third-party dealer
sales, and implementing a credit card policy for new subscribers.
With a higher-quality subscriber base, the company has
implemented programming package price increases, and higher HD
and DVR equipment service and lease fees in the U.S., driving
ARPU, which resulted in margin expansion.
In the second quarter of 2013, ARPU (average revenue per user)
in the U.S. was $98.73 compared with $94.40 in the prior-year
quarter. Average monthly churn rate remained flat at 1.53%. We
attribute this growth primarily to the popularity of its NFL
Sunday Ticket promotion. Moreover, other factors like customer
screening, target marketing, innovative product developments, and
avoiding disputes with content manufacturers and media companies
also resulted in the improved performance.
Meanwhile, increased net subscriber loss in the U.S. and a
huge fall in the growth rate of net subscriber addition in Latin
America are major concerns for the company. In the last quarter,
DIRECTV lost 84,000 pay-TV customers in the U.S. compared with
52,000 in the year-ago quarter. Telecom giants
Verizon Communications Inc.
) jointly gained 373,000 subscribers in the same quarter by
offering fiber-based TV services. Cable MSO
) was able to reduce the rate of net subscriber loss year over
year. In the Latin American region, DIRECTV added just 165,000
subscribers compared with 645,000 in the year-ago quarter.
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