Weekly Pay-TV Notes: AT&T & DirecTV Merge With FCC’s Blessing; Comcast Announces Strong Q2 Results And Declares Dividend

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The pay-TV industry saw significant activity this week, with AT&T completing its merger with satellite-TV provider DirecTV after receiving the green signal from the FCC. The combined entity will likely offer a “quadruple-play” bundle of mobile, fixed-line, high-speed internet and pay-TV, which will bring diversity to DirecTV’s business. The offering of four bundled services, compared to the three (fixed-line, internet and pay-TV) offered by most cable operators, could also provide the merged entity a significant competitive advantage. On a separate note, Comcast reported a strong set of numbers in its recent quarterly earnings report with high-speed internet segment and NBCUniversal leading the charge for the company. On that note, we discuss below these developments related to the pay-TV companies over the past few days.

AT&T-DirecTV Merger Complete After FCC Gives Nod Of Approval

AT&T (NYSE:T) has completed its merger with satellite TV provider DirecTV (NASDAQ:DTV) after the Federal Communications Commission (FCC) gave its nod of approval to the long pending merger Friday. [1] The combined entity is now the largest pay-TV operator in the world, servicing 26 million subscribers in the U.S. and 191 million subscribers in Latin America, Mexico and the Caribbean. The merger was announced in May last year and the regulatory review process has taken more than a year to be completed. As per the deal, DirecTV shareholders received 1.892 AT&T shares and $28.50 in cash for every share held of DirecTV. AT&T plans to provide an updated 2015 financial guidance in the coming weeks.

Now that the merger is closed, the combined entity will likely offer a “quadruple-play” bundle of mobile, fixed-line, high-speed internet and pay-TV, which will bring diversity to DirecTV’s business. The bundle will also induce DirecTV customers into switching on to AT&T for mobile services, as the bundled packages would likely offer efficient pricing. The fact that the merged company will be able to offer four bundled services, compared to the three (fixed-line, internet and pay-TV) offered by most cable operators, could also provide it a significant competitive advantage. [2] [3] The deal will also result in substantial savings, as the companies expect cost synergies of over $2.5 billion annually within three years of the deal closing, primarily on account of the increased scale of their video subscriber base. [4]

DirecTV’s stock remained stable at around $93.5 over the week. The company has notified NASDAQ of its intent to remove its common stock from listing and has requested NASDAQ to file a delisting application with the SEC to delist its common stock.

Comcast Announces Strong Q2 Results, Declares Dividend

Comcast (NASDAQ:CMCSA) reported its second quarter earnings Thursday. [5] The company added 180,000 high speed internet subscribers but also lost 69,000 pay-TV subscribers during the quarter. This result underscores the changing complexion of Comcast’s business. Even though the company made its name in the past selling cable services, it is the high speed internet segment that is leading the growth charge in recent years. From 13 million subscribers in 2007, Comcast’s high speed internet subscriber base increased to 22.55 million by the end of Q2 2015. The high speed internet business generated revenues of $3.1 billion during the quarter, 10% higher than the year ago period. [6] We expect the company’s high-speed internet business to continue to bring in more customers, while its pay-TV business will likely continue losing customers in the foreseeable future. The pay-TV revenues were up 4% to $5.4 billion for the quarter. [6]

The company’s media arm, NBCUniversal (NBCU) reported revenues of $7.2 billion in Q2 2015, a 20% jump as compared to Q2 2014. [6] NBCU’s numbers were boosted by the unprecedented success of its filmed entertainment segment, which grew 93% during the quarter. Blockbusters such as Furious 7, Jurassic World, Fifty Shades of Grey and Pitch Perfect 2 have helped the studio rake in $3.8 billion at the global box office during the first six months of 2015. [7] We believe that NBCU will continue to grow in the coming years, benefiting from the continued success of its film studio, cable and broadcasting networks, and theme parks. Comcast also declared a quarterly dividend of $0.25/share, which is line with its previous quarter’s dividend payout. [8]

Comcast’s stock declined around 3.3% through the week. We currently have a price estimate of $67.4 for Comcast. For the year 2015, we estimate revenues of $72.95 billion, compared to consensus estimate of $72.97 billion, and EPS of $3.28, compared to a consensus estimate of $3.29.

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Notes:
  1. AT&T Completes Acquisition of DIRECTV, July 24, 2015, DirecTV Investor News []
  2. Press Release, DirecTV, May 18 2014 []
  3. AT&T to Buy DirecTV for $48.5 Billion in Move to Expand Clout, NYTimes, May 18, 2014 []
  4. Investor Briefing, April 22, 2015, AT&T Press Release []
  5. COMCAST REPORTS 2ND QUARTER 2015 RESULTS, July 23, 2015, Comcast Investor News []
  6. Comcast’s SEC Filings [] [] []
  7. ‘Jurassic World,’ ‘Furious 7′ Push Universal to Record Year, June 14, 2015, Variety []
  8. COMCAST DECLARES QUARTERLY DIVIDEND, July 23, 2015, Comcast Investor News []
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