I think the numbers from DirecTV (DTV) look pretty good. The results support the company’s new strategy to focus on profitable growth even if it means slightly slower subscriber growth. Gross adds did come in a little light at 919,000 vs. estimates of around 1 million. However, the focus on retaining and attracting better quality subs is evident in lower than expected churn of 1.45% (vs. 1.6% estimated) that led to net sub adds growing as expected at 255,000. Also, supporting the new strategy was better than expected ARPU of $69.75, up 6% year over year and ahead of estimates. Subscriber acquisition costs and retention marketing were prettu much as expected so the better quality subscriber base produced EBITDA of $545 million, ahead of expectations.
Given the signs of success in DTV’s new strategy I would have expected the shares to trade up today. I think a couple of things may be at work causing the 1% drop in the shares. First, the stock rose 27% since the company reported 4Q05 earnings in early February. Maybe investors had already responded to the apparently successful strategy shift. Second, investors may still be concerned about long-term growth with gross adds softening at the same time that cable companies seem to have reignited basic subscriber growth. DTV management readily admits that competition is tougher than ever. With cable rolling out the full triple play bundle across virtually the entire country this year and maintaining a short-term edge in HDTV, investors may already be looking past DTV’s improving performance toward a period when satellite TV only providers begin to lose market share…

On other subjects, management responded to a question by noting that consolidation among cable companies and RBOCs and the fact that cable offers telephony and RBOCs are offering TV means that a merger between DTV and Echostar (DISH) might get approved. On the AT&T-BellSouth (T/BLS) merger, DTV said it was too soon to tell how that would impact the company’s distribution deal with BLS (T has a deal with DISH). There was limited commentary about implementing a broadband strategy. I think it is too late for satellite companies to enter high speed internet so I’d just assume DTV did nothing on this front as anything meaningful would be expensive and dilutive.
I think DTV shares can work higher from here but I think more upside exists in Comcast (CMCSA/K) if you are looking for exposure in multichannel TV.