Growing Competition In Latin America Has Mixed Implications For DirecTV

+63.97%
Upside
58.01
Market
95.12
Trefis
DTV: DIRECTV logo
DTV
DIRECTV

DirecTV’s (NASDAQ:DTV) growth in Latin America has been healthy, as evident from its Q3 2012 results. The company continues to see the success of its middle market products in Brazil and other countries. However, besides currency risk, DirecTV faces risk of increased competition that could slowdown its growth by luring value conscious customers. A recent development in this area is America Movil taking over DirecTV as the pay-TV leader in Latin America. [1] While in certain regions, the rising competition is going to weigh negatively on DirecTV, in other regions with less reach, it may actually prove beneficial. Governments are trying to promote competition and that can actually help DirecTV expand in regions with limited reach.

See our complete analysis for DirecTV

Influence Of Competition On DirecTV’s Growth In Latin America

Relevant Articles
  1. Weekly Pay-TV Notes: AT&T & DirecTV Merge With FCC’s Blessing; Comcast Announces Strong Q2 Results And Declares Dividend
  2. Why We Believe That The DirecTV-AT&T Merger Is Almost A Done deal
  3. DirecTV-AT&T Merger: Some Questions Still Remain
  4. How Much Of An Effect Is Cord Cutting Having On Cable Companies?
  5. How Are DirecTV’s U.S. Operations Trending?
  6. Factors That Could Potentially Trigger Movement In DirecTV’s Stock Price

DirecTV added close to 1.08 million gross subscribers and 543,000 net subscribers in Latin America (excluding Sky Mexico) in Q3 2012. While gross subscriber additions were up 13%, net subscriber additions were slightly down due to a higher monthly churn. [1] The higher churn resulted from increased penetration of middle market products, especially in Brazil.

The middle market customers in Latin America are value conscious and are likely to be less sticky than those opting for higher priced packages. This means that cost savings, in tandem with high quality service, is likely to be the primary driver behind the growth of pay-TV services in this region. Such cost savings can be achieved through bundled offerings, where DirecTV is lagging currently. The company has been contemplating acquisitions and expanding its satellite broadband service, which will help strengthen its competitive position. It has already started its broadband service, but it might be better if it had a cable partner to provide viable bundles to its customers.

The competitors such as America Movil are able to fill this gap of bundling and thus pose risk to DirecTV’s future growth. The passing of new laws in Brazil is fueling the competition further (see DirecTV Faces More Competition as Brazil Opens Pay-TV Market). In Brazil this was an unfavorable development for DirecTV as the company already had a healthy presence in the region. Brazil accounts for as much as 60% of the company’s Latin American revenues.

However, similar developments in under-penetrated regions can actually help DirecTV. One recent example is Colombia, where the government has imposed a partial spectrum auction ban on America Movil in order to promote competition. [2] This bodes well for DirecTV as the company will stand a better chance of acquiring some spectrum and building out a competitive network in the country.

The bottom line is that governmental efforts to spur the competition in Latin America are going to be a double edged sword for DirecTV. However, the consumers will benefit from increased competition that is likely to result in better service and lower prices due to promotional offers.

Our price estimate for DirecTV stands at $59, implying a premium of more than 10% to the market price.

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

Notes:
  1. America Movil takes over Latin American TV market lead from DirecTV, FierceTelecom, Nov 13 2012 [] []
  2. Slim’s America Movil Hamstrung as Colombia Woos DirecTV, NII, Bloomberg, Nov 13 2012 []