VALUATION HIGHLIGHTS

1. Satellite TV constitutes 55% of the Trefis price estimate for Dish Network's stock.
2. Dish's Spectrum Holdings constitute 45% of the Trefis price estimate for Dish Network's stock.

WHAT HAS CHANGED?

1. Stock decline in 2020

Dish Network has lost almost 28% of its stock value since the beginning of 2020 to $26 as of 8th May 2020. With the spread of coronavirus across the globe having hit economic activity, consumer spending power has declined, which has led to a further drop in the already dwindling business of Dish Network. With more people switching to streaming services (home confinement has increased demand for streaming services), the demand for traditional satellite TV is set to decline further, leading to further loss in the company's subscribers and revenue. However, recent acquisitions of Boost Mobile and Ting Mobile have driven a sharp surge in subscribers and in turn in revenue and earnings. This has led to a considerable recovery in Dish Network stock which now trades at around $36.

2. Dish Set To Enter 5G Wireless Market

Dish Networks finally announced plans for entering the U.S. wireless market. In late July, the company reached a deal with Sprint and T-Mobile (which are set to merge) to acquire Sprint’s prepaid businesses along with a portion of Sprint’s 800 MHz spectrum. The company will also gain full access to the merged entity's (New T-Mobile) wireless network for seven years, as it builds out its own wireless infrastructure. The company will leverage this deal, as well as its deep portfolio of wireless spectrum, to become the 4th U.S. wireless carrier. The company expects to reach 70% of the US population with 5G by the year 2023.

3. Latest Acquisitions

Dish Network completed the acquisition of Boost Mobile in July 2020 while that of Ting Mobile was completed in August 2020. The company benefitted with an addition of over 9 million subscribers as a result of the Boost Mobile Acquisition and over 200,000 subscribers as a result of the Ting Mobile Acquisition.

4. Latest Earnings

Dish Network revenues increased 43% year-on-year in Q3 2020 due to the acquisition of Boost Mobile and Ting Mobile during the quarter. The company reported earnings of $0.96 per share in Q3 2020 as against $0.74 in Q3 2019. Higher margins were a result of sharp rise in revenues and lower increase in cost of services. DISH ended the quarter with 8.965 million DISH TV subscribers and 2.458 million Sling TV subscribers. Total Pay-TV subscribers were 11.423 million. However, Pay-TV average revenue per user (ARPU) was $91.79. Additionally, the churn rate was 1.41%.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Dish Network's value that present opportunities for upside or downside to the current Trefis price estimate for Dish Network:

Satellite TV

• Fee per Satellite TV Subscriber: We estimate this figure will increase from about $91 in 2018 to about $92.4 by the end of our forecast period. However, there could be an upside of around 5% to our price estimate if this fee were to rise to $105 instead. This could be possible if programming costs rise too much, making it unfeasible for Dish to absorb them, and then passes on a significant portion of these costs to the end consumers.
• Dish Network Pay-TV Market Share: We estimate this figure to be around 11.5% by the end of our forecast period, as compared to 14.8% in 2018. However, there could be about a 5% upside to our price estimate if Dish Network can lift its market share to 12.5% by the end of our forecast period. On the other hand, if this figure were to decline to 9.5%, there could be a downside of more than 5% to our price estimate.
• Dish Network Gross Profit Margin: We estimate that Dish Network's gross margins will go down from 34.5% in 2018 to around 28% by the end of our forecast period. There could be an upside of more than 5% to our price estimate if Dish can get back to 42% gross margin levels seen in the late 2000s, by continuing to focus on a quality subscriber base and increasing its prices.

For additional details, select a driver above or select a division from the interactive Trefis split for Dish Network at the top of the page.

BUSINESS SUMMARY

Dish Network is the third-largest pay-TV provider in the U.S. after Comcast and AT&T-DirecTV. The pay TV market includes cable providers such as Time Warner Cable, Comcast, and Cablevision, satellite providers such as AT&T-owned DirecTV and Dish Network, and telecom providers such as AT&T and Verizon, that offer fiber optic TV services. More than 85% of TV households in the US subscribe to Pay TV services. Dish is the second-largest satellite TV provider in the U.S. after DirecTV.

Dish makes money by charging digital TV subscription fees to customers, selling digital TV boxes, selling premium services like HD and DVR, and by charging advertisers to advertise on some of the channels it carries.

Dish Network acquired DBSD North America and TerreStar in 2011. These were strategic investments by Dish in which the company got access to valuable AWS-4 spectrum that could help it in building a wireless network. Dish also made a successful bid for H-Block spectrum in 2014 and AWS-3 spectrum in 2015, taking its total spectrum holdings to 81 MHz. It acquired 486 spectrum licenses in 600 Mhz bands for $6.2 billion in 2017. Dish is currently the fifth-largest holder of wireless spectrum in the U.S., and the pre-tax value of its spectrum is around $25 billion, according to our estimates.

SOURCES OF VALUE

The majority of Dish's value comes from its spectrum holdings and its core satellite TV service. Although the company offers customers additional services like HD and DVR service, the value contribution of these services to Dish's overall value remains limited due to the lower fees charged for these services, and the limited number of Dish customers that opt-in for these additions.

Appreciation in Dish's spectrum holdings

Dish has made significant investments in spectrum over the past few years and is now the fifth-largest holder of wireless spectrum in the United States. The company has spent a combined sum of $16.8 billion in acquiring its spectrum. The value of spectrum in the U.S. has increased with time due to its growing demand in the wireless industry. This demand can be gauged from the AWS-3 auction conducted by the FCC in early 2015. The auction raised a total of $44.9 billion by auctioning 65 MHz of spectrum. In 2016-2017, the FCC offered more spectrum in the 600 Mhz band through a reverse auction 1000. Dish currently owns licenses to more than 80 MHz of spectrum, and we estimate the pre-tax fair value of Dish’s spectrum holdings to be around $25 billion.

High Fees for Satellite Service

The Fee per Satellite TV Subscriber for Dish's core offering was about $91 per month in 2018.

Number of subscribers set to declline

At the end of 2017, Dish had about 14.1% market share in the US Pay TV market, representing around 13.2 million subscribers. We expect Dish's market share to increase slightly throughout our forecast period. However, as many households are cutting chords, the viewers using cable service will decline in the coming years.

KEY TRENDS

Dish's strategy of acquiring wireless spectrum, bundling of services (TV, internet, phone), and increased competition from telcos (AT&T, Verizon) are the primary trends impacting Dish.

Dish's strategy of amassing spectrum

There is a looming spectrum crunch in the U.S. wireless industry, given the increasing data needs of mobile customers. Realizing this spectrum crunch and the associated opportunity, Dish Network has been strategically amassing spectrum. The company currently has more than 80 MHz of spectrum holdings, including 40 MHz of AWS-4 spectrum, 10 MHz of H Block PCS spectrum, 20 MHz of AWS-3 spectrum, and 24 Mhz of the 600 Mhz spectrum.

The AWS spectrum supports LTE and can be used by wireless phones and other mobile devices for voice, messaging, and data services. Most smartphones are AWS-enabled and can communicate using this spectrum. The H Block spectrum band is adjacent to and can be paired with Dish's AWS-4 licenses, which is highly desirable. Another desirable aspect is that the AWS-4 and H Block spectrum cover every territory in the United States. Dish can now move forward with several options, such as launching its own nationwide wireless network, partnering with an existing wireless carrier, or leasing/selling the spectrum.

Competition rather than Cooperation with Telcos (e.g. AT&T and Verizon)

Before AT&T's U-verse and Verizon's FiOS fiber optic TV services were launched, telcos and satellite providers would team up to provide bundled TV, Internet, and phone services to compete with triple-play offerings from cable operators like Comcast and Time Warner Cable. However, telcos now compete with satellite providers in certain areas, and the level of competition will continue to increase as telcos continue to roll out their TV services.

Fiber-based providers represent one of the fastest-growing sectors in the Pay TV market

Several large telcos have upgraded old copper wire lines with fiber optic lines in their markets. The fiber optic lines provide high capacity bandwidth, enabling these companies to offer increased HD content, and the ability to bundle services.

Alternative platform threat

Dish Network, in particular, and pay-TV service providers, in general, face a threat from emerging online video platforms such as Netflix and Hulu. Although these platforms mostly provide content that is not running live on TV, they are now slowly penetrating the pay-TV provider's core turf. Netflix's successful entry into original programming with the success of its shows, such as House of Cards, Orange is the New Black and Daredevil, is an example.

Content owners demanding more money

Dish Network has engaged in conflicts with content owners in the past over the issue of its demand for higher carriage fees. We believe Dish Network's periodic price rise is a response to cope with such demands, so that channel interruption does not occur. Dish blocked several channels in 2017 amid carriage disputes.