Dish Network Earnings Preview: What We Are Watching
Dish Network (NASDAQ:DISH) is reporting its Q2 2012 earnings Wednesday. While subscriber trends and Blockbuster additions will be in focus, the future strategy regarding containing costs and supporting its margins will be important. The company will report loss of about 10,000 net subscribers which it recently disclosed in one of its SEC filings concerning announcement of $1 billion of debt offering. This will be no surprise given that Q2 is seasonally weak quarter for pay-TV companies. Furthermore, this is going to be a comparatively strong performance as Dish’s competitors including Comcast (NASDAQ:CMCSA), DirecTV (NASDAQ:DTV) and Time Warner Cable (NYSE:TWC) have reported much sharper losses. Additionally, Dish’s Q2 2012 figures will still be an improvement over 2011 when the company lost 20,000 subscribers.
See our complete analysis for Dish Network
Blockbuster’s performance is going to be important as it relates to Dish’s bundling business, thus making the subscriber base more sticky. The company has been closing under-performing stores and focusing more on streaming, which is the right thing to do. Bundling Blockbuster streaming with pay-TV service creates a compelling product but Dish will need to continuously enrich its content. We expect a healthy increase in Blockbuster’s streaming base. This service constitutes roughly 10% to 15% of Dish’s estimated value.
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Investors should be aware of a couple of key risks that Dish faces. The company is taking a bold step venturing into wireless broadband business with the help of the spectrum it purchased last year. We expect it to give more clarity regarding its approach to create the wireless broadband network. We believe that rather than building everything by itself, Dish is more likely to use third-party infrastructure to build.
Furthermore, the company may continue to face margin pressure as programming costs rise. This is one of the biggest challenge for Dish which does not have a compensating broadband business yet to make up for margin declines. Cable operators, on other hand, are heavily pushing their broadband business and enhancing their profits, thus making themselves more resistant to pay-TV margin pressure.
Our price estimate for Dish Network stands at $34.30, implying a premium of more than 10% to the market price.
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