DirecTV gains lost on Street

Stock dips amid U.S. sub concerns; Q1 profit up 43%

NEW YORK -- Satellite TV provider DirecTV Group reported a 43% increase in its first-quarter profit Wednesday as it continued to sign up higher-quality customers and reduced service cancellations.

However, the firm's profit and 235,000 net U.S. subscriber additions came in below Wall Street expectations, dragging down DirecTV shares 2.6% to $23.75. During the past year, the stock has traded between $15.88-$26.09.

DirecTV president and CEO Chase Carey later told Reuters that while the first-quarter subscriber gain fell behind the year-ago period, the company expects to add about the same number of subscribers this year as in 2006. The satellite firm reported 820,000 net additions for last year, down from an original estimate of about 1 million.

El Segundo-based DirecTV, whose ownership control is expected to be transferred from News Corp. to Liberty Media Corp. this year, posted a first-quarter profit Wednesday of $336.4 million, up from $235.2 million in the year-ago period. Revenue rose 15% to $3.91 billion.

Net subscriber additions for the DirecTV U.S. business reached 235,000 in the latest period, down from 255,000 in the year-ago quarter. This brought the company's total user base to 16.2 million, up 5% year-over-year.

Goldman Sachs analyst Anthony Noto had predicted 265,000 user net additions for the quarter, citing strong gains in satellite subscriptions reported by telecommunications firms. "We highlight this as a concern given DirecTV's growing reliance on a channel whose long-term goals may not be aligned with DirecTV's" as telecom firms have launched their own video services, Noto said.

Average monthly revenue per user rose from $69.75 in the year-ago period to $73.40. DirecTV's rate of churn, or subscriber turnover, edged from 1.45% to 1.44% -- DirecTV's lowest churn rate in three years.

Helping key metrics are increased sales of high-definition TV equipment and digital video recorders, according to the company.

In a conference call with Wall Street analysts, Carey said he had hoped for an even lower churn rate and said his team is not content yet with the company's customer service, which he added should become "a gold standard."

Nonetheless, he called the overall first-quarter results "solid" and said they proved "the strength of DirecTV's video service and improved competitive positioning in the marketplace."

Carey also said Wednesday that DirecTV remains on schedule to offer up to 100 HD channels by the end of the year. The CEO argued that this will allow the satellite TV giant to "offer significantly more HD channels than most of our competitors, providing DirecTV with an important advantage in this rapidly growing market."
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