Updated: Sub Growth Disappoints at DirecTV

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 Stiffer competition from telcos, price increases on some products and a faltering economy helped drive subscriber additions to an all-time low at DirecTV in the second quarter, but the nation's largest satellite TV service provider said it has made changes that are reversing that trend.
DirecTV added a mere 26,000 net new customers in the second quarter, the lowest growth in its history and down from 100,000 net new additions in the same period last year. The sluggish growth, coupled with an already skittish market, helped drive shares down as much as 12.6% ($6.23 per share) in early trading Thursday.
On a conference call with analysts to discuss results, DirecTV chief financial officer Patrick Doyle said more aggressive competition, especially from telcos, a planned price increase for certain programming packages and the continued lackluster economy all combined to curb subscriber growth in the period. But Doyle added that DirecTV identified the problem early, made appropriate changes and growth trends are back on track, with . Doyle said that subscriber growth began to return to past levels in June and that trend has continued through July. While it is still too early to tell whether the third quarter will see a return to past customer growth, Doyle said that DirecTV is on track to hit all of its financial guidance targets.
"We had some challenges with churn in the quarter," Doyle said on the call. "We have made excellent progress in addressing that."
CEO Mike White said that DirecTV stepped up efforts to manage churn in a more targeted way, including refining its segmentation analysis to better identify customers more likely to churn as they near the expiration of their two-year contracts, increasing upgrade and retention spending and raising credit score requirements for new customers.
"I think we've made excellent progress in addressing our churn issues, but I am cautiously optimistic that the worst is behind us," White said. "In fact, based on the favorable subscriber trends we've seen so far in the third quarter, I think we've also regained some of our lost momentum."
That seemed to appease some investors - DirecTV stock started to claw back later in the day, rising to $47.23 per share in later afternoon trading (down 4.5% or $2.24 per share). The stock closed Thursday at $46.63, down $2,84 each or 5.7% in what was a dismal day for the stock market, with the Dow Jones Industrial Average dropping more than 500 points..
The lack of domestic growth overshadowed what was another strong quarter for its Latin American operations - DirecTV added 472,000 new customers in the region in the period, a 14% increase over last year.
In the U.S., revenue rose 7% to $5.3 billion and operating profit before depreciation and amortization rose 4% to $1.4 billion, in line with expectations.
While Latin America has been a growth engine for the satellite giant over the past several quarters, in a research report, Sanford Bernstein cable and satellite analyst Craig Moffett noted that 77% of DirecTV's total cash flow is generated in the U.S.
Moffett noted in the report that uncertainty over the status of the National Football League season - and DirecTV's exclusive NFL Sunday Ticket programming package - could have weighed on the subscriber performance. The NFL resolved its labor dispute in July.
"Still, subscriber growth is unmistakably slowing," Moffett wrote.

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