Dish’s Subscriber Losses Continue Clouding Outlook

As we previously expected, Dish Network’s (NASDAQ:DISH) Q3 2012 results were soft. The company reported revenue growth of just 1.2% compared to the same quarter last year, and a net subscriber loss of 19,000.  While the subscriber and revenue trends represent an improvement over Q3 of 2011, a comparison with last 2-3 quarters and with its rival DirecTV (NASDAQ:DTV) tells us a different story. It appears that Dish hasn’t been able to sustain the promise it showed initially regarding Blockbuster and subscriber turn-around. In addition to this, the company is facing margin pressure while its competitor DirecTV seems to be doing better on that front.

See our complete analysis for Dish Network

Subscriber Turnaround Hopes Fall Flat

After a long losing streak, Dish Network swung back to positive net subscriber additions in last quarter of 2011. The company was showing promise with its Blockbuster promotion as well as focus on high credit quality subscribers. This promise further strengthened in Q1 of 2012, when the company gained 104,000 net subscribers, beating its main competitor DirecTV. ^[1] However, the situation has changed significantly since then and the company has been losing subscribers for the past two quarters. While Q2 results can be blamed on seasonality, there is hardly any excuse for subscriber losses incurred in Q3. Additionally while DirecTV managed to grow its revenues by 7% and 6% in Q2 and Q3 of 2012 respectively, Dish recorded negative growth in Q2 and just 1.2% growth in Q3. ^[2]

We believe that while saturation in the U.S. pay-TV industry is an issue plaguing all pay-TV companies, Dish’s performance has been mediocre in Q3 due to its dispute with AMC, the inability to control subscriber churn, uncertainty around Dish’s commitment to Blockbuster and no progress on wireless broadband front.

Despite this, the company’s stock was up after earnings.

We believe that one of the main reason behind this increase is the possibility of a merger/acquisition between DirecTV and Dish Network. Analysts have floated this idea and it may not be a bad way to go given that Dish seems to be acknowledging how tough and competitive the market has become. ^[3] If this happens, Dish Network will get additional resources to build out its wireless network.

While Dish reported a loss this quarter, it resulted from accounting of litigation cost of over $700 million related to its VOOM settlement. This is a one time cost and investors shouldn’t be too concerned about it. The silver lining is that Dish has settled the case. This bodes well from subscriber satisfaction perspective as the company has brought back AMC’s networks.

We are in process of updating our model in the light of recent earnings, and will have an update ready soon.

Our price estimate for Dish Network stands at $33, implying a discount of more than 5% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Dish Network’s SEC Filings [↩]
2. DirecTV and Dish Network’s SEC Filings [↩]
3. Dish Network’s Q3 2012 Earnings Transcript [↩]