DirecTV Second-Quarter U.S. Sub Gains Weaken

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UPDATED: The company added only 26,000 U.S. subscribers, its lowest quarterly growth ever, pushing its stock down as CEO Mike White cited "favorable subscriber trends" so far in the third quarter and explained why the satellite TV giant is looking at buying Hulu.

NEW YORK - Satellite TV giant DirecTV reported improved second-quarter revenue and profit on Thursday, but its U.S. subscriber growth weakened to its lowest quarterly pace ever  as the company cited economic weakness and heated competition.

On a conference call, chairman and CEO Mike White also explained why his team is looking at a potential acquisition of online video site Hulu, saying it could further the firm's goal of providing consumers access to programming any time and anywhere, including via the Internet, in line with a TV Everywhere strategy. He didn't comment on the state of the Hulu auction and DirecTV's exact plans.

DirecTV's stock dropped all day amid the weaker U.S. subscriber growth. As of 2:30pm ET, it was down 6.4 percent at $46.32.

White cited the "lackluster economy" and a "tough competitive landscape" as key factors that drove subscriber churn higher than expected. "The pickup in competitive intensity that we saw coming out of the first quarter has yet to abate," he said, citing incentives from competitors and "consumers who are increasingly under stress from an ongoing weak economy [that] have resulted in more price conscious consumers shopping for better deals."

But White also argued that DirecTV has made progress in addressing these issues by refining audience segmentation to match up subscribers in danger of dropping service with the firm's best customer service agents and offers, for example. "I'm cautiously optimistic that the worst is behind us," he concluded as management said third-quarter churn is more in line with the year-ago period. "Based on the favorable subscriber trends we have seen so far in the third quarter, I think we have also regained some of our lost momentum."

DirecTV's quarterly profit rose 20 percent to $701 million, and revenue grew 13 percent to $6.6 billion.

DirecTV once again added subscribers in the U.S. and Latin America, but its 26,000 U.S. customer additions - to end June at 19.43 million U.S. users - compared with 100,000 in the year-ago period and were its lowest-ever quarterly gain. The subscriber additions also underperformed Wall Street expectations. Wunderlich Securities analyst Matthew Harrigan had predicted 68,000 net additions, and the Wall Street consensus estimate stood at 57,000. Sanford Bernstein analyst Craig Moffett said U.S. subscriber momentum is "unmistakably slowing." In its fast-growing Latin American unit, DirecTV added 472,000 net new customers.

The NFL labor dispute stretched throughout the quarter, and DirecTV has the exclusive rights for the NFL Sunday Ticket program package, which could have affected U.S. user trends.

In the U.S., average revenue per user increased 3 percent to $90.58 driven by price increases on programming packages and leased set-top boxes, as well as higher advanced service fees. Those were partially offset by more promotional offers, according to the company. "Net additions declined to 26,000 as the increase in gross additions was more than offset by a higher average monthly churn rate of 1.59 percent principally resulting from a more competitive environment coupled with ongoing economic weakness," DirecTV said.


Twitter: @georgszalai