DirecTV Racks Up 275,000 New Subs In Q1

Beating expectations, DirecTV Group Wednesday reported a net gain of 275,000 subscribers, up 17% in the first quarter, while average monthly revenue per customer  rose nearly 9%, to $79.70.

The nation’s largest satellite provider -- which now has 17 million subscribers, up 5% from a year ago -- also saw its lowest first-quarter monthly churn rate in 10 years, at 1.36%.

DirecTV racked up net subscriber additions of 275,000, versus 235,000 in the year-ago quarter. Gross subscriber additions were 964,000, up 4% from 929,000 a year ago.

“The increase in gross additions was primarily due to increased sales of HD and DVR services, as well as strong results from our direct sale channel,” DirecTV said in its first-quarter press release. “The reduction in churn was principally due to an increase in the number of subscribers with advanced services and a continued focus on attaining higher-quality subscribers, including the implementation of tighter credit policies.”   

DirecTV’s U.S. revenue increased 14%, to $4.05 billion in the first quarter. Cash flow for before interest and taxes for the U.S. operation was $603 million, up from $343 million a year ago,  while free cash flow hit $505 million, up from $262 million.

The results prompted a quick report Wednesday by Sanford C. Bernstein & Co. analyst Craig Moffett.

“DirecTV's subscriber growth was particularly strong,” he wrote. “Their 275,000 net additions, triggered by respectable gross additions and exceptionally low churn, were 17% higher than last year. The result comes in the wake of strong telco net additions, smaller-than-expected losses at cable, and a smaller-than-year-ago available market due to weak housing.” 

In its press release, DirecTV also disclosed that its large shareholder Liberty Media has agreed to limit its voting power to its current ownership percentage, 47.9%, regardless of the number of shares DirecTV buys through its stock repurchase program, which has increased to $3 billion.

Liberty Media increased its stake in DirecTV from 41% to nearly 48% back in April. 

“Notably, parent Liberty Media simultaneously announced that it will limit its voting power to its current 47.9%,” Moffett wrote Wednesday. “That will quell hopeful speculation that Liberty will buy in all of DirecTV.”

DirecTV Holdings said it planned to raise up to $2.5 billion in debt. The company will privately offer up to $1.350 billion principal amount of senior notes due 2016. An additional $150 million principal amount of senior notes due 2016 may be sold pursuant to a 30-day over-allotment option. Concurrently, DirecTV intends to raise up to $1 billion in the form of an incremental term loan under its existing senior secured credit facility.

DirecTV Holdings said it plans to use the net proceeds from this offering for general corporate purposes, including to pay a dividend to its parent, DirecTV Group, which will be available to be used by it to fund purchases of stock under its share repurchase program.

Despite the robust first-quarter results, Moffett believes that DirecTV faces a tough landscape the rest of the year.

“It is reasonable to ask at this point, however, whether this is as good as it gets,” he said in his report. “Despite remarkably strong performance in Q1, DirecTV now faces significant headwinds going into Q2, including normal seasonal softness, a weak HDTV selling season, and the loss of AT&T's distribution relationship to Dish Network.”

Moffett went on the suggest that direct-broadcast satellite may be shut out of the broadband business because of Wednesday’s announcement of a $3.1 billion wireless-broadband joint venture with Sprint, Clearwire, Comcast, Time Warner Cable, Intel and Google. 

In his report Wednesday on the Wi-Max venture, Moffett said, “The satellite operators DirecTV and Dish would look to be the ‘odd men out.’ Both have a tenuous JV with Clearwire to provide wireless broadband that will now presumably be dissolved.”

And in his DirecTV report, Moffett also noted, “Recently, DirecTV's Dallas, Texas, venture with Broadband over Powerline provider Current, which passed 2 million homes in Central Texas, was shuttered.”

According to Moffett, “DirecTV is now facing the unwelcome prospect of a future where the only  broadband pipes into the home – now and in the future – come from cable, telecom, and now… a joint venture of cable and telecom. All are direct competitors. There simply aren't any unaffiliated broadband options left.”

Moffett wrote, “With Verizon and AT&T having won the lion's share of the licenses in the 700 MHz auction, it appears clearer than ever than that broadband access to the home will be available exclusively from satellite's competitors. As broadband becomes ubiquitous, the risk is no longer that bundles might be perceived as simply marginally more attractive financially; instead, the DBS firms face the risk of complete competitive foreclosure.”