DISH Network Inc. (DISH) declared fourth quarter of 2010 financial results today that outperformed the Zacks Consensus Estimates. Quarterly GAAP net income was $252 million or 56 cents per share compared with a net income of $179 million or 40 cents per share in the prior-year quarter. EPS of 56 cents in the fourth quarter of 2010 was well above the Zacks Consensus Estimate of 53 cents.

Quarterly total revenue increased 8.2% to $3,210 million, from $2,960 million in the year-ago period. This was mainly due to an increase in subscriber related revenue. This was also above the Zacks Consensus Estimate of $3,193 million.

However, DISH Network lost 156,000 net subscribers during the reported quarter, which reduced its total subscriber base to 14.133 million at the end of 2010. This was primarily attributable to increased competition, sluggish macro-economic conditions and multiple programming interruptions related to contract disputes with several content providers.

DISH Network competes fiercely with DIRECTV (DTV) and large cable TV operators such as Comcast Corp. (CMCSA) and Time Warner Cable Inc. (TWC).

For full fiscal 2010, segment wise, Subscriber related revenue was approximately $12.544 billion, up 8.7% year over year. Equipment sales & other revenue was $59.8 million, down 38.9% year over year. Equipment sales, services, and other revenues from EchoStar was $37.2 million, up 34.9% year over year.

Average monthly subscriber churn rate in fiscal 2010 was 1.76% compared with 1.64% in fiscal 2009. Average revenue per user (ARPU) in 2010 was $73.32 compared with $70.04 in the previous year. Average subscriber acquisition cost in 2010 was $776 compared with $697 in 2009.

For fiscal 2010, Subscriber-related expenses increased 5% year over year to $6.68 billion, caused by higher programming content costs and expenses related to call center operations. Subscriber acquisition cost increased by 7.4% year over year to $1.65 billion. This was primarily due to a rise in new subscribers, partially offset by a decline in advertising and hardware costs per activation.

General and administrative expenses grew 3.9% year over year to $625.8 million on higher personnel costs and professional fees to support the network. Fiscal 2010 operating income increased by a whopping 39.9% to $1.94 billion, while operating margin increased to15.4%, from the year-ago level of 11.9%. Accordingly, fiscal 2010 EBITDA was $2,955.8 million compared with $2,311.4 million in fiscal 2009.

During fiscal 2010, DISH Network generated $2,139.8 million of cash from operations compared with $2,194.5 million in fiscal 2009. Free cash flow (cash flow from operations less capital expenditures) in fiscal 2010 was $1,026.6 million compared with $1,157.4 million in fiscal 2009.

At the end of fiscal 2010, DISH Network had $3,164.9 million of cash and marketable securities and $6,514.9 million of outstanding debt on its balance sheet compared with $2,309.6 million of cash and marketable securities and $6,496.6 million of outstanding debt on its balance sheet at the end of fiscal 2009.

Recommendation

We maintain our long-term Neutral recommendation on DISH Network. Currently it holds a short-term Zacks #3 Rank (Hold).

 
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