(DTV) DIRECTV Analyst Maintains Neutral Rating

DIRECTV (DTV) declared excellent financial results for the second quarter of 2011. These solid results were the combined effect of a double-digit growth of the top line and solid margin and ARPU expansion. The company is reaping the benefits of affluent quality subscribers, who are willing to pay for DIRECTV’s premium services and programs, which are pricier.  DIRECTV remains one of the few pay-TV service providers that are still generating video subscriber growth.

However, net subscriber growth rate suffered a major setback in the U.S. in the recent times. This was primarily attributable to ongoing U.S. economic volatility and increasing competitive threat from telecom giants, who entered into the pay-TV services supported by their strong fiber-based network. Meanwhile, the Latin American operation continues to flourish and will remain strong in the near future since these markets are mostly untapped. We reiterate our Neutral recommendation.

In the second quarter of 2011, DIRECTV added 26,000 net subscribers in the U.S. and 472,000 in Latin America. ARPU in the U.S. and Latin America increased by 3% and 13.3%, respectively. The most surprising fact is that DIRECTV is generating net subscriber addition sequentially, when other large pay-TV operators like cable TV giant Comcast Corp. (CMCSA), Time Warner Cable Inc. (TWC), and DISH network Corp. (DISH) are sequentially loosing basic video customers. We believe this fabulous performance was the combined result of effective customer screening, target marketing, avoiding disputes with content manufacturers and media companies.

In the U.S., cable TV and satellite TV operators are facing fierce competition from telecom service providers. Telecom operators are quickly gaining market share from cable TV and satellite TV service providers by offering fiber-based TV and other high-speed broadband services to subscribers. A recent Bloomberg research report stated that in the second quarter of 2011, the six large cable and satellite service providers in the U.S. together lost 580,000 video customers, a historical high figure in the industry. However, in the same quarter, AT&T (T) and Verizon Communications Inc. (VZ) together added 386,000 video customers.

COMCAST CORP A (CMCSA): Free Stock Analysis Report

DISH NETWORK CP (DISH): Free Stock Analysis Report

DIRECTV (DTV): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

TIME WARNER CAB (TWC): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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