DIRECTV (DTV), the largest satellite TV operator of the U.S., declared brilliant fourth-quarter of 2010 financial results today. The solid result was the combined effect of a double-digit revenue growth, significant margin expansion, and better-than-expected net customer addition.

Management’s strategy to target high-end customers paid-off nicely as the demand for the company’s HD channels and digital-video recording services sky rocketed in the reported quarter.

In synergy with its continued strong financial results, the board of directors of DIRECTV has authorized a massive $6 billion share buy-back program. Management is also confident that the company’s full-year EPS will jump to $5.0 in 2013 from $2.3 in 2010.

Fourth quarter of 2010 total revenue came in at $6,621 million, an improvement of 10.7% year over year, surpassing the Zacks Consensus Estimate of $6,519 million. This was primarily attributable to massive subscriber growth in the U.S. and Latin America regions, as well as average monthly revenue per subscriber (ARPU) growth of 4.6% at DIRECTV U.S. and $59 million of net revenue generated by DIRECTV Sports Networks, which was acquired as part of the transaction with Liberty Media Corp. (LINTA) in November 2009.

Quarterly GAAP net income was $618 million or 74 cents per share compared with a net loss of $32 million or a loss of 3 cents per share in the year-ago quarter. Fourth-quarter 2010 EPS of 74 cents was miles ahead of the Zacks Consensus Estimate of 62 cents.

Quarterly operating profit before depreciation & amortization (OPBDA) was $1,684 million, up 12.7% year over year. Operating profit in the fourth quarter of 2010 came in at $1,062 million, up 23.2% year over year, primarily due to gross profit associated with higher revenues, partially offset by an increase in subscriber acquisition costs.

During fiscal 2010, DIRECTV generated $5,206 million of cash from operations compared with $4,431 million in fiscal 2009. Free cash flow (cash flow from operations less capital expenditures) in fiscal 2010 was $2,790 million compared with $2,360 million in fiscal 2009.

At the end of fiscal 2010, DIRECTV had $1,502 million of cash & cash equivalents and $10,510 million of outstanding debt on its balance sheet compared with $2,605 million of cash & cash equivalents and $8,010 million of outstanding debt at the end of fiscal 2009.

DIRECTV U.S. Segment

Quarterly total revenue was $5,531 million, up 7.9% year over year, primarily due to strong ARPU growth and larger subscriber base. Quarterly ARPU increased 4.6% to $96.64. Quarterly operating profit before depreciation & amortization increased 3.8% to $1,324 million and operating profit increased 15.1% to $863 million.

Average monthly subscriber churn rate in the reported quarter was 1.44%, a huge improvement over 1.52% in the prior-year quarter. Quarterly net subscriber addition was 289,000 compared with 1119,000 in the year-ago quarter. As of December 31, 2010, DIRECTV U.S. had 19.223 million subscribers, up 3.6% year over year.

DIRECTV Latin America Segment

Quarterly total revenue was $1,031 million, up 22.9% year over yearresulting from continued strong subscriber growth including a significant 48.8% increase in fourth- quarter net subscriber additions to 378,000. Quarterly ARPU decreased 2.5% to $61.12 due to currency devaluations, mainly in Venezuela. Quarterly operating profit before depreciation & amortization increased 56.2% to $342 million and operating profit increased 62.3% to $185 million.

Average monthly subscriber churn rate in the reported quarter was 1.55% compared with 1.54% in the prior-year quarter. As of December 31, 2010, DIRECTV Latin America had approximately 5.808 million subscribers, up 26.6% year over year.

Recommendation

We maintain our long-term Neutral recommendation on DIRECTV. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

 
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