We issued an updated research report on DIRECTV DTV on Mar 31, 2015. The company reported strong financial results in the fourth quarter of 2014 wherein both the top and the bottom line surpassed the Zacks Consensus Estimate. Moreover, the company has become the first multi-channel video provider to offer 4K Ultra HD programming directly to subscribers.
For the Latin America region, DIRECTV has adopted a new set of strategies. The company is gradually gaining traction in the highly-untapped pay-TV market and is utilizing favorable macroeconomic and demographic trends to target both high-end and low-end offerings. Also, the company is focused on pursuing the next-generation wireless broadband and online on-demand video facilities. Adding to these, DIRECTV has initiated a massive marketing drive to attract customers to its exclusive programming. Such strategies have helped the company gain 903,000 new subscribers in 2014. As of Dec 31, 2014, DIRECTV’s Latin America segment had approximately 12.471 million customers, up 7.8% year over year.
Furthermore, DIRECTV plans to boost its TV Everywhere service and upgrade its user interface by investing heavily on satellites and broadcast infrastructure. The company has already launched the DLA-1 satellite and is planning to roll out the DLA-2 satellite in the later half of 2015, which we believe will improve the company’s quality of service. Such tactical investments will not only help the company deliver superior video service but will also help it to maintain its market share.
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 high cost per user as DIRECTV was paying $1 billion every year to NFL. Meanwhile, the company has extended its contract for the “Sunday Ticket” package with NFL. Although the financial terms of the deal have been kept under wraps, industry sources reveal that the new deal will extend the broadcasting right for a span of 8 years for a total consideration of $1.5 billion per annum. This will likely dent the company’s margins further in the coming quarters.
DIRECTV currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in this sector include DigitalGlobe, Inc. DGI, EchoStar Corp. SATS and Verizon Communications Inc. VZ. All these stocks hold a Zacks Rank #2 (Buy).
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