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Dish Results Beat Across the Board

Dish Network ( DISH ) recently released its Q1 2011 earnings, beating analyst estimates. Based on improved financial performance of the company in recent quarter, we have upgraded our price estimate for Dish Network from almost $28 to $31.48 implying almost 10% additional upside. Below we take a brief look at the evolution of Dish Network's strategy of improving financials and see what earnings results tell us. The company competes with satellite-TV providers like DirecTV ( DTV ), cable service providers like Comcast ( CMCSA ) and Time Warner Cable ( TWC ) and telecoms like AT&T ( T ) and Verizon (VZ).

Dish's Problems Leading To Pursuit of Financial Improvement

The company has faced some financial issues in the recent past. In 2009, Dish Network's revenue growth stunted and revenues increased by just 0.4% due to declines in average subscriber fee offset by increased subscriber count. In addition to this, gross margins dropped by almost 3% and selling general & administrative expenses (SG&A) (as fraction of gross profits) increased by almost 4%. To add to this, subscriber growth started to suffer in mid of 2010. These problems arose in part from disputes with content owners over carriage fee leading to channel blackouts.

As a result of these setbacks, Dish decided to focus on improving its financial position. The company is now being more careful with regards to its subscribers' quality and ROI (return on investment) opportunities.

Improved Pricing and SG&A Evident

As a result, we have seen improvements in certain financial metrics of the company. For instance, the company recently raised its prices on most packages. While many analysts are concerned this could lead to greater subscriber churn; however, Dish Network's management stated that the transition has gone smoothly so far. However, the actual impact will be more visible in Q2 of 2011. We now expect average subscriber fee to rise to more than $60 per subscriber in 2011 and stabilize thereafter.

In addition to the above, total SG&A costs (as a fraction of gross profits) have fallen primarily driven by significant improvements in subscriber acquisition costs. These costs came down due to lower marketing expenses and more use of re-manufactured receivers. We expect the company to keep SG&A expenses in check as it keeps focus on financials. However, eventually competition will force the company to increase its marketing expenses and we expect SG&A to pick up in later years.

See our full analysis of Dish Network's stock here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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