Buoyed by its strong growth in the Latin American markets, DIRECTV (DTV), the largest satellite TV service provider in the U.S., has decided to strengthen its operations in Argentina. The company will invest $46 million throughout 2011 to solidify its satellite pay-TV services and also star offering Internet access.
During the second quarter of 2010, DIRECTV achieved several milestones in Latin America. Quarterly net subscriber addition was a record high 415,000 compared with just 128,000 in the year-ago quarter. As of June 30, 2010, DIRECTV Latin America had approximately 5.224 million subscribers, up 25.5% year over year. Average monthly subscriber churn rate in the reported quarter was 1.63% compared with 1.91% in the prior-year quarter.
DIRECTV remains as one of the few pay-TV service providers that are still adding commendable basic video subscribers. In order to get tax incentive from the Argentina government, DIRECTV has decided to set up a production facility in the southern province of Tierra del Fuego to produce television decoders.
DIRECTV recently improved subscriber quality – i.e. shrank the proportion of subscribers with low credit ratings – by restructuring dealer incentives (changed the commission and penalty structure), cutting the proportion of third-party dealer sales, and implementing a credit card policy for new subscribers.
With a higher-quality subscriber base, DIRECTV has implemented programming package price increases, and higher HD and DVR equipment service and lease fees driving increases in ARPU. Quarterly ARPU increased 3.1% to $56.98.
Nevertheless, there also exist some negative factors. Although DIRECTV generated substantial net subscriber addition in the Latin American region, most of this growth was primarily due to FIFA World Cup 2010 Soccer Tournament. We remain skeptical whether the company will be able to repeat this fabulous performance in the future reporting quarters.
We thus maintain our long-term Neutral recommendation for DIRECTV. Currently, it holds a short-term Zacks #3 Rank (Hold) stock.
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