Why is DirecTV's growth slowing?
As long as customer service remains solid, the company should be able to achieve the revenue growth it wants.
The No. 1 satellite pay-TV service provider in the U.S. claims it's seeing a higher customer turnover rate due to a dispute with News Corp's (NWS) Fox as well as better performance by its peer Dish Network (DISH). See our complete analysis for DirecTV.
Subscriber gains remain solid
DirecTV gained 125,000 net U.S. subscribers in the fourth quarter -- healthy growth given the saturation in pay-TV market and a sluggish housing market. Still, those additions pale in comparison to the 327,000 net subscriber gain in the third quarter and the 289,000 in the last quarter of 2010. The quarter-over-quarter decline in net additions was about 61% and year-over-year decline was about 57%.
We believe that heightened competition is to blame. Dish Network has been trying to recover from a slump in growth, with the help of Blockbuster, and Comcast (CMCSA) subscriber losses slowed a great deal in the fourth quarter.
Going forward, competition will only get stronger and subscriber growth will become more difficult for DirecTV.
What to expect in 2012
The company expects U.S. revenue growth will primarily come from a bump in per-user revenue rather than in the number of subscribers. Higher revenue per user will result from price increases from higher programming fees as well as greater usage of pay-per-view and premium movie channels.
As long as DirecTV's customer service remains solid, the company should be able to achieve the required per-user revenue growth. But being a stand-alone provider of pay-TV services is growing increasingly risky, and DirecTV may need to make a push into broadband. We are in process of updating our pricing model for DirecTV in light of these recent results.
Our price estimate for DirecTV stands at $53.26, implying a premium of more than 15% to the market price.
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