DirecTV (NASDAQ:DTV) recently stated that it added 100,000 net subscribers in the U.S. in the fourth quarter of 2012.  This brings the company’s total net adds for 2012 to 196,000, which we expect to be significantly higher than the expected net adds for its competitor Dish Network (NASDAQ:DISH). Compared to the cable companies who are losing subscribers, DirecTV’s performance is stellar. Furthermore, the performance is commendable given that the U.S. pay-TV market is highly saturated. However, if we compare DirecTV’s subscriber performance in 2012 against 2011, we note that there was a substantial decline.
DirecTV gained close to 667,000 net subscribers in 2011 compared to 196,000 in 2012.  The 70% decline certainly raises the alarm, but it wasn’t something unexpected. Dish has improved slightly given its focus on subscriber credit quality and Blockbuster streaming. In addition, the cable companies are doing better, especially Comcast (NASDAQ:CMCSA). Since the U.S. pay-TV market has reached full penetration in our view, it almost becomes a zero sum game. If the competitors do better, DirecTV’s growth is bound to be affected.
However, the telcos have slowed down their pace of expansion and that has given the company a breather. As far as revenue growth is concerned, subscribers are not the only way to go. DirecTV continues to expand the penetration of advanced services such as DVR, HD and on-demand video. In addition, the company periodically raises prices. We note that DirecTV resorted to a 4% increase in 2011 and 2012 and starting from February 2013, the prices will go up again by 4.5%.   
We believe that the slowdown in DirecTV’s subscriber additions shouldn’t be much of a concern. The company maintains high standards of customer service, is proactive in bringing HD channels and the latest DVR technologies to the market, focuses on subscriber credit quality and offers NFL Sunday Ticket. Given that it seems to be doing most things right, its growth in the U.S. market is likely to continue. Additionally, the growth potential in Latin America looks good. We estimate that Latin America constitutes close to 25% of DirecTV’s value.
Our price estimate for DirecTV stands at $59, implying a premium of about 15% to the market price.Notes:
- DirecTV says it added 100,000 subscribers in fourth quarter, Reuters, Jan 8 2012 [↩]
- DirecTV’s SEC Filings [↩]
- DirecTV to Increase Prices by 4.5%, The Wall Street Journal, Dec 27 2012 [↩]
- DirecTV To Raise Rates 4% In 2011, DSLReports.com, Dec 27 2010 [↩]
- DirecTV Joins the Rate Hike Season Festivities, DSLReports.com, Jan 19 2012 [↩]