Sunday, February 20, 2011

DIRECTV (NASDAQ: DTV): Q4 Earnings Preview 2010

DIRECTV (NASDAQ: DTV) is scheduled to release its fourth-quarter earnings before the opening bell on Wednesday, February 23, 2011. Analysts, on average, expect the company to report earnings of 62 cents per share on revenue of $6.52 billion. In the year ago quarter, the company reported earnings of 48 cents per share on revenue of $5.98 billion.

DIRECTV provides digital television entertainment in the United States and Latin America. The Company operates two direct-to-home (DTH) operating segments: DIRECTV U.S. and DIRECTV Latin America.

In the preceding third-quarter, the El Segundo, California based company's net income was $479 million, or 55 cents per share, compared with a profit of $366 million, or 37 cents per share, in the prior-year quarter. Revenue grew to $6.025 billion from $5.465 billion. Analysts, on average, expected the company to report earnings of 55 cents per share on revenue of $5.97 billion.

DirecTV’s strongest factors are its premium brand image and a huge subscriber base, which has kept growing over the years. Several years ago, the company tightened its credit requirements and took other steps to eliminate customers who were more likely to cancel service or fall behind on monthly payments.DirecTV added about 174,000 subscribers in its Q3 2010, which is about 28% higher compared to same period last year. Last month, DirecTV Chief Executive Mike White told analysts the company expects to have more than 600,000 net additions for the fourth quarter of 2010 — a combination of gross sign-ups and cancellations. Its churn — or cancellation rate — is expected to be smaller than 1.54%.

DTV has established itself as the pay TV leader in sports programming. In addition to its exclusive offering of the NFL Sunday Ticket, which allows fans to see NFL games not being shown locally in a given market, DirecTV also has a “Sports Pack” that offers 30 regional sports channels not normally seen outside specific areas, such as Fox Sports Detroit, Comcast Sports Net Chicago and New England Sports Network. These premium products have intensely loyal fan bases, Amobi notes.

The company plans to expand its customer base by offering cheaper TV packages with fewer channels and is exploring new ways of bundling Internet access with its satellite TV service. Chief Executive Mike White said in December that the satellite provider will try to grab market share from its cable rivals by offering fewer channels at a lower price in a pilot program next year in a few markets. He added that the packages will likely attract customers who are used to paying $30 a month for TV and not the more frugal $15-a-month customers that cable providers are losing. As costs rise for carrying cable networks, White said the company might offer "a la carte" sports channels in 2011, meaning consumers can buy one channel at a time, like ordering Fox's The Big Ten Network, instead of an entire sports package. The company is also in talks with wireless wholesalers like Clearwire Corp (NASDAQ: CLWR), Harbinger and other companies about trying to strike a deal to provide broadband access to consumers in bundles, possibly under its own wireless brand.

DirecTV is also discussing with movie studios about how to acquire premium video on demand, only a few weeks after movies are released in theaters. He said the movies would probably be priced between $20 to $30. DirecTV said it would reach an agreement on this premium video by next year.

However, within the satellite TV industry, DIRECTV is facing increasing competition from its nearest rival DISH Network (NASDAQ: DISH). Furthermore, U.S. telecom giants, AT&T (NYSE: T) and Verizon Wireless (NYSE: VZ) are increasingly rolling out their fiber-based network in order to provide video services. Additionally, the newly developed Internet video streaming companies like Netflix (NASDAQ: NFLX), Hulu, YouTube have become major threats to the overall pay-TV industry.

Recently, DirecTV launched  3net, the 24/7 3D network, delivering the first all-time, all-3D channel anywhere. 3net is a joint venture of Discovery Communications, Sony, and IMAX.3net will deliver compelling, native 3D content to the marketplace and thus serve as a critical driver for consumer adoption of in-home 3D entertainment.  The partnership’s commitment to the emerging 3D market is historic, with plans for the channel to offer viewers the largest library of native 3D entertainment content in the world by the end of 2011.

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