DirecTV Continues To Add Pay-TV Subscribers In The U.S. And Latin America

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DirecTV (NASDAQ:DTV) reported solid subscriber growth in the U.S., adding 93,000 video subscribers during Q4 2013. [1] While the cable operators continue to lose video subscribers, satellite operators have been able to expand their customer base. DirecTV in particular has been on the uptrend for quite some time now, primarily due to its better customer service and exclusivity of NFL Sunday Ticket.

DirecTV’s customer service is generally good and it received an American Customer Satisfaction Index (ACSI) score of 72, reflecting customers’ overall satisfaction with the service in 2013. On several parameters such as perceived quality, picture quality, HD picture quality, channel range, and website satisfaction, DirecTV stayed at the top. [2]

In Latin America, the company added 231,000 video subscribers. The company said that pay-TV continues to gain acceptance in the region as an increasingly must-have consumer staple with the growth in middle-class segment. [3] Overall the company posted good numbers for the fourth quarter with 7% growth in the top line. However, the profits plunged 14% due to higher programming costs and unfavorable changes in foreign currency. [1] There was no surprise element in this due to the given macroeconomic situation in the Latin American countries.

Going forward into 2014, the company expects pressure on both top and bottom line dollar-based growth primarily due to fluctuations in foreign exchange, higher programming costs driven by the World Cup, and some difficult comparisons related to onetime benefits in 2013. [3]

 

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DirecTV’s U.S. operations contribute close to 60% to its value, according to our estimates. The U.S. operations continued their steady growth in the fourth quarter. The revenues and operating profits jumped over 7% to $6.77 billion and $1.10 billion respectively. The churn rate declined to 1.41% from 1.43% in the prior year period while the ARPU (average monthly rate per user) jumped 6% to $112, reflecting higher advanced receiver service fees and price increases on programming packages. [1] While the satellite industry posted solid growth over the past few years, the growing availability of online content as an alternative video platform, along with an expanding market for connected devices, poses a competitive challenge to the entire pay-TV industry in the U.S. It is all the more noteworthy, then, that DirecTV can continue to add subscribers in such an environment.

The Latin American operations contribute more than 25% to DirecTV’s value, according to our estimates. The revenues in the region grew by 6% to $1.77 billion primarily due to 15% rise in average number of subscribers. The churn rate was also higher at 2.21% as compared to 1.75% in the prior year period and ARPU declined by 8% to $51.47. [1] However, ARPU actually increased by 8% in local currency and the decline in dollar terms was the impact of unfavorable currency exchange. We continue to believe that in the longer run DirecTV will benefit from the rising pay-TV demand in Latin America, due to its middle-market focused programming packages and the growing popularity of prepaid products. Moreover, despite rapid growth in pay-TV, the industry largely remains under-penetrated and offers enough room for growth.

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Notes:
  1. DirecTV’s SEC Filings [] [] [] []
  2. DIRECTV Tops DISH and AT&T U-Verse, Continues 13-Year Winning Streak Over Cable in 2013 American Customer Satisfaction Index, DirecTV Press Release, May 21, 2013 []
  3. DIRECTV Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 20, 2014 [] []
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