Dish Network Continues To Lose Revenues And Subscribers In Q2

Dish Network‘s (NASDAQ:DISH) stock declined by over 4% following its Q2 release on Thursday, August 3 as the company reported a 5.7% decline in revenues to $3.64 billion. Dish also lost 146,000 pay-TV subscribers in the quarter despite the addition of 444,000 gross new Pay-TV subscribers. Additionally, the company’s ARPU declined to $87.25, indicating that there were likely more Sling TV subscribers, who generally pay lower monthly fees. Below we discuss the key takeaways from the company’s earnings.

Sling TV Driving Growth

Dish’s Pay-TV business witnessed a decline during the quarter even as it activated approximately 444,000 gross new Pay-TV subscribers. While the company does not disclose standalone numbers for Sling TV currently, we believe that the net Sling TV subscriber adds have helped reduce the rate of decline in the pay-TV subscriber base. However, since many of the pay TV additions were for Sling TV, which is offered at a lower price point, the company’s Pay TV ARPU declined by 3% year-over-year. As a result, Pay-TV and broadband revenues declined to $3.61 billion for Q2 compared to $3.83 billion in the quarter a year ago.

Spectrum Plans

Dish’s spectrum holdings constitute nearly 60% of its valuation, according to our estimates. The company has stated that it is planning to use the spectrum for the Internet of Things (IoT), but also that the hardware for its 5G and 600 Mhz spectrum is not ready. This can impact the company’s plans as the FCC mandates use of some of the spectrum by 2020. As a result, Dish might either have to forfeit some spectrum or undergo litigation to retain its spectrum as is the case with the litigation of AWS-3 spectrum.

We expect that Dish will continue to post declines in revenues and subscribers for the remainder of 2017 as over the top (OTT) services from companies such as Netflix (NASDAQ:NFLX), Amazon and Hulu promote cord cutting. However, Dish’s management believes that Sling TV is well poised to take advantage of changing video consumption behavior and changes in preference towards streaming. While this will likely put pressure on the company’s ARPU given Sling TV’s lower price point, it should still help Dish shore up its pay-TV revenues overall, as it will help the company mitigate the risk of cord-cutting. Nevertheless, we expect that Dish will continue to lose pay-TV subscribers throughout our forecast period, albeit at a slower pace. These losses, coupled with pressure on ARPU, will negatively impact revenues in the near term.

We have a $62 price estimate for Dish Network, which is about in line with the current market price.

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