Dish Earnings Preview: Sling TV To Boost Revenues, Spectrum Strategy Still Unclear

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Dish Network (NASDAQ:DISH) is set to report its Q1 2017 earnings on May 1, [1] and we expect that its results will be once again marked by an accelerated loss in subscribers. Users are actively shifting to over the top (OTT) streaming services such as Netflix, and Pay-TV companies are losing subscribers rapidly. To counter the increasing competition, Dish launched its streaming service Sling TV in 2015. This service offers “skinny bundles”, which include only those channels that a user really wants and at a price that is cheaper than traditional cable. The company has managed to somewhat stem the subscriber losses due to Sling TV. However, once Sling TV subscribers stabilize, the loss in pay TV subscribers will likely become apparent. Nevertheless, the company continues to respond to cord-cutting to support its Pay TV services.

Meanwhile, at the recently concluded FCC auction spectrum, Dish bid for and won spectrum worth $6.2 billion. Dish already has significant spectrum holdings, and this recent purchase of spectrum continues to fuel uncertainty regarding Dish’s spectrum strategy. We will look for the company to shed some light on its spectrum strategy in the upcoming earnings announcement.

See our complete analysis for Dish Network

Cord Cutting Measures Will Continue To Support Subscriber Numbers

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In 2016, Dish witnessed marginal growth in revenues, primarily due to higher ARPU. However, the company lost over 225,000 pay TV subscribers. The loss could have been even higher were it not for Sling TV.  Dish’s management believes that Sling TV is well poised to take advantage of changing video consumption behavior and change in preferences towards streaming. We believe that as the company continues to launch new services for its OTT video product, its Sling subscriber base should see growth even though its top line might witness tepid growth in revenues.

Despite stemming the decline in its subscriber base, the increasing contribution of Sling TV to revenues can negatively impact the company’s ARPU given Sling TV’s lower price point. Nevertheless, as Dish’s cord cutting countermeasures gain traction, the OTT services can help the company navigate the secular pressures in the pay-TV space. We believe that growth in the Sling TV subscriber base will help Dish to shore up its pay-TV revenues in Q1.

Spectrum Strategy In Focus

Dish’s spectrum holdings constitute nearly 60% of its valuation, according to our estimates. The company’s strategy to monetize its spectrum holdings will be a key value driver for the company. For years, Dish has been buying spectrum but has not disclosed its plans for the use of this spectrum. At the recently concluded FCC auction, Dish spent $6.2 billion on spectrum. Following the auction, Dish now controls a much more diverse portfolio of spectrum that can be used for both streaming videos and/or providing cellular signals for long distance services. In this earnings announcement, we will be looking for the company to more clearly articulate its stance on how it plans to use its spectrum holdings in the future.

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Notes:
  1. Dish Investor relations []