DirecTV (NASDAQ:DTV), the biggest satellite pay-TV provider in the U.S, and close competitor of Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC), released its Q1 2012 earnings recently. While the U.S. business is showing signs of saturation and high competition, the Latin American growth remains solid. Although Brazil still accounts for a substantial portion of new subscriber additions, other Latin American countries are exhibiting high growth as well and attempting to catch up.
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Total gross subscriber additions passed 1 million in Latin America, registering a growth of 35% compared to the same period last year. [1] The net subscriber additions grew at a slightly higher rate amounting to 593,000. [1] A substantial portion of new subscribers are signing up for pre-paid services and about 65% of gross additions in Brazil, which is DirecTV’s biggest market in Latin America, came from middle market segment.
The point here is that while currently it appears that DirecTV’s competition in Latin America is low, the nature of the subscriber base makes the business dynamics a little different. The sensitivity of the subscribers to price changes and changes in financial conditions is higher compared to the U.S. Thus, as competition expands and rivals provide attractive offers, DirecTV may have to deal with higher churn.
The concept of service provider loyalty takes a back seat in emerging markets where it all revolves around a competitive price. Currently the Brazilian market is opening up to more competition as a result of recent law changes. This is going to change the competitive landscape over time.
The positive thing is that the growth rate remains brisk and DirecTV is now experiencing higher growth rate in some markets other than Brazil, thus diversifying its risk. Even though competitive landscape might change in the future, the company’s bright prospects will not vanish and instead, it will adapt itself according to the changing conditions. Latin America will continue to be the engine of DirecTV’s growth.
Our current price estimate for DirecTV stands at $53.26, implying a premium of more than 10% to the market price. We are in process of reviewing our price estimate in light of recent earnings.
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