DirecTV Has Stable Q3


Growth at DirecTV showed some signs of slowing down in the third quarter; the company posted 136,000 net new subscriber additions, slightly behind analysts’ estimates.

While the satellite-TV giant well outpaced consensus estimates for revenue growth (up 9.7% to $5.5 billion), it missed targets for cash-flow growth (up 7.7% to $1.34 billion), which managed to calm any analysts concerns. Analysts’ had estimated that revenue growth would be about 8.7% and operating cash flow would rise 10.7% in the period. Churn for the period was also slightly higher — 1.72% vs. a consensus of 1.63% estimate.

Analysts had expected the satellite giant to add about 156,000 new customers in the period.

“It sounds like the lower adds and higher churn are voluntary and part of DirecTV’s initiative to focus on profitability and high-quality subs,” wrote Wells Fargo media analyst Marci Ryvicker in a note to clients. She added that with average monthly revenue per unit rebounding in the quarter (it was up 2.1% to $85.32, beating consensus of 1.7% growth), there could be some upside to 2010 estimates.

Sanford Bernstein cable and satellite analyst Craig Moffett was most impressed with the ARPU growth, adding that the other metrics highlighted the stability of the business.

“The stability in ARPU trends should reassure investors who worried that the combination of aggressive promotional activity and package downsizing from stretched consumers might rob DirecTV of an important growth engine,” Moffett wrote.

On a conference call with analysts, interim CEO Larry Hunter said that slower basic subscriber growth was, in part, attributed to tighter credit controls at the company and fewer promotional offers. He added that subscriber growth through its relationship with AT&T was strong and gross additions rose 8% to 1.1 million in the period.

And though net new subscriber growth was less robust, the customers that are signing on are buying more products. Hunter estimated that about two-thirds of new customers subscribe to advanced services, and about 50% of DirecTV customers have HD and/or DVR service. That, coupled with reduced subscriber acquisition costs, reduced churn and strict attention to reducing overall costs led to a 94% increase in free cash flow in the period to $643 million from $332 million in 2008.

Hunter added that the planned merger with Liberty Entertainment (which houses Liberty Media’s 57% interest in DirecTV) is on track to be completed shortly after its scheduled Nov. 19 shareholder meeting.