DirecTV (NASDAQ:DTV) and Dish Network (NASDAQ:DISH) have been longstanding rivals in the satellite TV market. While the former has flourished, the latter has struggled to hold on to its subscriber base in recent years as telcos such as AT&T (NYSE:T) and Verizon (NYSE:VZ) have expanded their fiber-optic pay-TV services rapidly. Although Dish has started to make some critical investments to make itself more valuable, its current valuation and our estimates for the two companies present an interesting relative view of DirecTV’s success compared to Dish. The two very similar companies have seen a noticeable divergence in terms of their subscriber bases and overall performance, and the magnitude of difference in their growth is astounding.
Our price estimate for DirecTV stands at $53, a premium of about 20% to the market price.
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Obviously our estimate of DirecTV’s value is substantially higher than our valuation for Dish, given the massive difference in subscriber count. However what is somewhat surprising is the fact that our estimate of DirecTV’s Latin American business is approaching that of Dish’s overall pay-TV business. We estimate that DirecTV’s Latin American pay-TV business is worth a little more than $10 billion. This value would be even higher if we included the company’s equity investment in Sky Mexico, which it does not consolidate in its Latin American results. On the other hand, we estimate that Dish Network’s pay-TV business in the U.S. (which excludes Blockbuster and equipment sales) is worth a little more than $12.5 billion. What does this tell us?
A segment in which DirecTV had just over 3 million subscribers four years ago is now rivaling Dish Network’s established business in the U.S. in terms of overall value. DirecTV has successfully demonstrated that the Latin American market offers vast potential. Although its subscriber base is lower than that of Dish, growth has been rapid and there is still potential for more. On the other hand, Dish Network’s subscriber growth has decelerated. Dish will need to unveil some ambitious growth plans (which is certainly a possibility given its large spectrum position) in order to make this a legitimate rivalry once again.
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