DIRECTV (DTV) reported mixed financial results for the second quarter of 2012. The company generated a record high net customer addition in Latin America, increased ARPU in the U.S., and higher operating margin and OPBDA.
Side by side, for the first time in its history, DIRECTV suffered a quarterly net customer loss in the U.S., in the previous quarter. Management cited stricter credit standards and reduced promotional discounts are the primary reasons for net subscriber loss in the U.S. DIRECTV lost a net 52,000 customers in the last quarter. The company’s closest rival DISH Network Corp. (DISH) outpaced DIRECTV in terms of net subscriber loss (10,000) in the previous quarter.
DIRECTV is trying hard to establish itself as a premier pay-TV operator targeting higher-quality subscribers. Management is confident that it will be able to achieve its long-term financial goals in 2013 without any hiccup. However, competitive threats to the pay-TV industry and slow economic growth are near-term concerns. We believe the stock is fairly valued and, thus, maintain our long-term Neutral recommendation on the stock.
Increased demand for HD DVR services has induced the company to focus more on new product development. The Whole-Home DVR penetration has more than doubled year over year. The company is also planning to launch a new product called ‘Home Media Center’ in the upcoming quarters. The new device not only records five shows at one time but also has double storage capacity as compared to traditional HD DVR. The innovative Nomad device, which provides flexibility to customers to watch programs anywhere, is also gaining popularity.
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