DirecTV (NASDAQ: DTV)’s solid first-quarter earnings have some in the industry considering the possibility of a telco acquisition of the satellite company. Bernstein Research senior analyst Craig Moffett described DirecTV as a safe choice for investors – its management is first rate as is its product and affluent customers. Plus, it has AT&T’s recent distribution agreement working for it. Coupled with its relatively simplified ownership structure announced earlier this week, Moffett said it has a “dollop of acquisition potential should AT&T or Verizon ever decide they’re bored simply being telecommunications companies.”
“DirecTV’s eye-popping addition of 460K subscribers blows away consensus expectations of 275K net additions, and will inevitably re-start the usual parlor game of “where are all the subs coming from?” Moffett wrote in a research note. “Cable has already reported solid basic video numbers. So have the telcos. The Digital TV transition has undoubtedly helped, although the demographics suggest the benefit was likely more of a boost to cable than to DirecTV. All in all, the results suggest a much healthier pay TV market than anyone anticipated, but still likely a very grim result for Dish Network (due to report next Monday) which is once again likely to be the odd-man-out.”
With the help of AT&T’s marketing, DirecTV added 1.18 million subscribers, up 21.9% from last year. Moffett estimated that AT&T brought in 100,000 of these subscribers, meaning that DirecTV alone grew 11.5%, likely at the expense of Dish.
On its previous quarter earnings call, the company also vowed to court the mobile industry this year. Carey said a key objective of DirecTV would be to build relationships with wireless operators to their full potential. He provided little details of what that meant, only saying that the company already has wireless functionalities, like with its DVR scheduler, and the relationship with wireless operators could evolve a lot of ways.
Still, the telcos are looking more and more like competitors rather than allies, according to Moffett. Although AT&T helped DirecTV with its distribution partnership, he said, it may hurt it with its competing U-Verse IPTV service, as will competition from Verizon’s FiOS TV, which is targeting almost exactly the same high-end demographic. Without its own broadband offering, Moffett believes growth expectations won’t be so high for the satellite industry over the next year.
“And while we would never say ‘never’ to the prospects of a telco acquisition, it’s fair to say we’re a bit more skeptical than the consensus when-not-if view,” Moffett said. “All of that suggests to us a relative high return hurdle, and DirecTV just isn’t quite cheap enough to draw is in.”
