On May 28, 2015, we issued an updated research report on DIRECTV DTV.
DIRECTV reported disappointing first-quarter 2015 earnings results. Adjusted earnings of $1.44 per share missed the Zacks Consensus Estimate of $1.52 and also deteriorated 11.7% on a year-over-year basis. Net income declined 13.3% from the year-ago quarter to $730 million. Meanwhile, total revenue improved 3.7% year over year to $8,143 million, which lagged the Zacks Consensus Estimate of $8,158 million.
At the end of the first quarter of 2015, the U.S. segment of the company had 20.412 million subscribers, up 0.7% on an annualized basis. ARPU (average revenue per user) in the U.S. stood at $105.62 compared with $100.16 in the prior-year quarter.
In order to increase its HD and 4K Ultra HD capacity, DIRECTV has successfully launched two satellites in the U.S. and Latin America. Such tactical investments will not only help the company deliver superior video service but will also help it to maintain its market share.
DIRECTV has become the first multi-channel video provider to offer 4K Ultra HD programming directly on subscribers’ TV sets. The company has launched the service in partnership with Samsung, a leading provider of UHD TVs. DIRECTV’s customers will now be able to access Ultra HD content using a DIRECTV Genie HD DVR and a supporting 2014 Samsung Electronics Ultra HD TV.
On the flip side, management expects cost per user to rise in the range of 7% to 9% by 2016, mainly on account of contract renewals. Also, the company’s deal with National Football League (NFL), which expired at the end of 2014, will account for the raised cost per user as DIRECTV was paying $1 billion every year to NFL.
Also, sluggish growth in the Latin-American region is a major concern for DIRECTV. In the Latin American segment, quarterly ARPU stood at $43.52 as against $48.83 in the prior-year quarter. Moreover, average monthly churn rate in the U.S. for the reported quarter was 2.34% as compared with 2.13% in the prior-year quarter.
DIRECTV currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in this sector include Comcast Corporation CMCSA, Liberty Global plc LBTYA and TELUS Corporation TU. All these stocks hold a Zacks Rank #2 (Buy).
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