We maintain our long-term Neutral recommendation on DISH Network Corp. (DISH). The company’s first-quarter 2011 profit more than doubled year over year. The exellent performance was mainly driven by higher expenditure by the existing customers for the company’s premium services. DISH Network is slowly transforming itself from a low-priced leader in the U.S. pay-TV industry to a premium service provider to its subscribers’ churn rate. The company is concentrating its marketing efforts on higher-priced subscribers and raised the prices of its products and cut back discounting.
On April 6, 2011, DISH Network won the auction for the currently bankrupt movie and video game retailer Blockbuster Inc. DISH Network will pay $320.6 million. However, the company estimated that after adjusting available cash and inventory of Blockbuster, DISH Network needs to pay approximately $228 million. The acquisition provides DISH Network the rights that Blockbuster currently enjoys to stream movies over the Internet. In this respect, DISH Network may become a viable competitor to online video streaming companies such as Netflix Inc. (NFLX), Hulu, and uTube.
We believe for the last couple of months, management is trying hard to develop DISH Network for the storage of spectrums that can be used to grow a viable pay-TV distribution network. In March 2011, DISH Network purchased bankrupt DBSD North America for $1.4 billion. This acquisition provides DISH Network the extremely valuable spectrum of DBSD for both wireless and wireline communications. Furthermore, agreement with TiVo Inc. (TIVO) to settle all legal disputes will enhance the company’s technological superiority over its formidable large rivals.
Nevertheless, in the U.S., the pay-TV market is highly competitive. We believe targeting low-end customers did not generate the required momentum for the company. The U.S. economy is improving and as a result, customers are more inclined to pay for premium services. However, it requires a strong content portfolio, innovative delivery system and effective marketing strategy to capitalize on these opportunities. Meanwhile, the stock price has moved up by nearly 74% last year and we believe DISH Network is at present fairly valued.
DISH NETWORK CP (DISH): Free Stock Analysis Report
NETFLIX INC (NFLX): Free Stock Analysis Report
Be the first to comment