DirecTV (NASDAQ:DTV) will report its Q1 2014 earnings on May 6. The satellite company has so far performed better among the pay-TV operators and reported solid subscriber growth in the U.S., adding 169,000 video subscribers in 2013.  The company is focused on retaining its existing subscribers in the U.S., in a time when pay-TV industry at large is saturated. This will help the company grow its ARPU (average monthly subscription fee) in the U.S.
The company’s Latin American (LatAm) operations have been driving the growth for the company for quite some time now. However, there has been a slowdown in the recent past primarily due to the depreciation of LatAm currencies against the U.S. Dollar. As a result, the ARPU has dropped by 10% to $52 in 2013 as compared to $57 in 2012.  We’d like to see how the subscriber and ARPU trends were during the first quarter.
Last week, The Wall Street Journal reported that AT&T (NYSE:T) has approached DirecTV about possible acquisition in a deal worth at least $40 billion.  We’ll be closely watching for any updates from the company’s management on this front.
U.S. Subscriber Trends In Focus
The U.S. satellite TV operations contribute close to 60% to DirecTV’s value, according to our estimates. It must be noted that the overall U.S. pay-TV industry lost 105,000 net video subscribers in 2013 while DirecTV managed to gain 169,000.  The difficulty in the U.S. pay-TV industry reflects a combination of market saturation, fierce competition, and the increased focus of providers on acquiring higher-value subscribers. Moreover, some consumers opt for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options.
DirecTV has managed to add pay-TV subscribers despite slowdown in the industry. One of the reasons for this is the cord switching from cable to satellite providers. Moreover, DirecTV’s exclusive programming in the form of NFL Sunday Ticket and better customer service has helped it reduce subscriber churn, which in the previous quarter was lowest for fourth quarter in 15 years. We believe these factors will continue to drive growth for DirecTV in the near term. In the long run, the subscriber as well as ARPU growth will depend on DirecTV’s renewal of the NFL deal, which will end after 2014 season.
Concerns Over Latin America
LatAm operations contribute close to 25% to DirecTV’s value, according to our estimates. In 2013, the company’s LatAm revenues increased 10% to $6.84 billion primarily due to the rise in subscribers. DirecTV’s LatAm pay-TV subscriber base grew 12% to 11.57 million in 2013.  The company has been able to gain market share in Latin America due to the success of its middle-market focused programming packages and the growing popularity of prepaid products.
However, in the recent past, things haven’t been great on LatAm front. Macroeconomic volatility in Brazil weighed on the company’s earnings in the past few quarters. The situation still looks gloomy with Brazil’s GDP expected to grow by 2.3% this year and Venezuela’s inflation soaring towards 60%.   While we believe DirecTV will continue to add more subscribers in the LatAm markets, we are still wary of ARPU trends given the currency impact from the macroeconomic volatility in the region.
- DirecTV’s SEC Filings [↩] [↩] [↩]
- AT&T Has Approached DirecTV About Possible Acquisition, The Wall Street Journal, May 1 , 2014 [↩]
- Major Multi-Channel Video Providers Lost About 105,000 Subscribers in 2013, Leichtman Research Group, Mar 14, 2014 [↩]
- Brazil’s Mantega sees economy growing 2.3 pct in 2014, Reuters, Apr 28, 2014 [↩]
- Venezuela surges toward 60% inflation, Channel News Asia, Apr 26, 2014 [↩]