Analyst Predicts Tough Second Quarter For DirecTV
Downgrade Based On Mortgage Crisis, AT&T Switch To Dish Network In Former BellSouth Territory
By Linda Moss -- Multichannel News, 4/24/2008 10:03:00 AM
With the impact of the mortgage crisis and the loss of BellSouth’s former territory, business will get much “tougher” for DirecTV in the second quarter, according to a Wall Street analyst.
Sanford C. Bernstein analyst Craig Moffett Thursday downgraded DirecTV’s stock to a “market perform” from “outperform,” and he said he was shifting his preference to Dish Network.
In his report, Moffett noted that DirecTV has seen its stock price rise as HDTV penetration has increased. The nation’s largest satellite provider has vastly expanded its HDTV lineup this year. But DirecTV’s HDTV advantage won’t be as beneficial in the second quarter, according to Moffett.
“Traditionally, 70% of HDTVs are sold during the four months from September (at the start of the football season) and February (the Super Bowl),” he said. “Service providers tend to follow the same HDTV rhythm.”
The mortgage debacle will also hurt DirecTV, according to Moffett.
“The impact of the housing crisis is likely to be felt the most strongly in Q2, already the seasonally weakest quarter for DBS,” he wrote. “Moving to a new home has historically been the primary purchase trigger for changing TV service providers. With the mortgage market still in deep freeze, housing velocity has slowed to a crawl and gross additions have already plummeted.”
And thirdly and most importantly, according to Moffett, AT&T has stopped bundling and reselling DirecTV service in BellSouth’s former territory, instead offering Dish Network’s.
“Gross additions from DirecTV's single largest distributor, AT&T (in its former BellSouth territory) will accrue to Dish Network, not DirecTV, in Q2,” Moffett wrote. “While well-telegraphed, the April 1st switch to Dish Network will have a significant impact on net additions in the second quarter.”
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