Dish Rises Despite Loss of 94K Subs

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Dish Network managed to best the dismal first-quarter expectations of analysts and in the current economic climate, that appears to be enough.

Dish lost 94,000 customers in the first quarter, its third straight period of declines, but the results were better than the 128,000 losses most analysts were expecting. That and a big boost to net income — largely tied to reduced subscriber-acquisition costs — sent the No. 2 satellite-TV provider's stock as high as $18.58 (up $3.27 each or 21.4%) in early trading May 11, closing at $17.92 each that day, up $2.61 each (17%).

For the quarter, revenue rose 2.1% to $2.9 billion and net income increased 20.8% to $313 million. Subscriber acquisition costs (cost associated with set-top boxes and other equipment) fell 22% in the period to $292.2 million.

“In the end, the results were bad — a loss of 94K subscribers isn't good news in anyone's book — but they could have been much worse,” wrote Sanford Bernstein cable and satellite analyst Craig Moffett.

Collins Stewart media analyst Tom Eagan wasn't as kind. “Our view: the Dish operating model is broken and we would avoid the shares,” Eagan wrote in a research note.

On a conference call with analysts, Dish CEO Charlie Ergen didn't pinpoint the reason for the better than expected performance, adding that the digital transition (which several cable companies cited for gains) had little impact on results.

Ergen also said that it is too early to tell if deep discounting — Dish began offering a six-month promotion of 100 channels for $9.99 per month — helped soften subscriber losses.

If that is the case, wrote Wachovia Securities media analyst Marci Ryvicker in a research note, then it appears that Dish's underlying business is doing better than the Street had anticipated. That and some recent changes to management — Dish recently named former AT&T executive Robert Olson as chief financial officer, promoted CFO Bernard Han to chief operating officer and gave added sales and marketing responsibilities to executive vice president Tom Cullen — seemed to soften Ryvicker's stance on the company.

“While we don't expect marked improvement, inroads are being made in terms of management (there were several new appointments this quarter) and customer service,” Ryvicker wrote.

On the conference call, Ergen said the impact of the promotion would probably be felt more in the second and third quarters. And though Cullen said that many of those customers end up getting a more-expensive package, Ergen said earlier that he does not want to be known as the satellite discount king.

“I don't like discounting of programming,” Ergen said. “We're doing that today. I think we have a consensus internally that that is not where we want to be long-term.”

Ergen added that so far, the impact of losing its distribution agreement with AT&T in February has been minimal, but that it will likely climb in later quarters.

In its 10-Q filing with the Securities and Exchange Commission, Dish said about 5% of its gross subscriber additions came from AT&T in Q1, but abut 17% of gross adds came from the telco in 2008.

About 1 million Dish customers came in through the AT&T sales channel — and AT&T is not allowed to target those customers with its current TV offerings, the 10-Q stated. But the document added that those customers also tend to churn at a slightly higher rate than Dish's overall churn.

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