Sweet Spot: DirecTV Continues Success With Video

DirecTV‘s largely high-end customer base appears to have propelled the DBS op to another solid Q, although cable’s healthy broadband adds this earnings season may dim the party lights going forward. DirecTV added 129K net subs, increased US rev 13% to $4.2bln and delivered a 1.49% churn rate, a 4-yr 2Q low. In light of a sputtering economy, aggressive competition and some of the inferior sub/financial numbers reported within the multichannel industry, CFO Pat Doyle is particularly pleased by the results, which also included 7% ARPU growth and a 35% drop in capex—the latter due in part to a "rapid decline" in set top costs and the near-term end to the satcaster’s HD expansion. But even as pres/CEO Chase Carey spoke fondly of DirecTV’s "sweet spot" provided by higher-end subs, he did acknowledge some concern with DSL. The telcos’ broadband offering is "meaningful to us," said Carey, with more DirecTV subs opting for DSL than cable modem service. In line with the cable’s impressive HSD adds in 2Q, Comcast et al is entering DirecTV homes at a greater clip, which may lead to triple-play defections. "We would like to see [ AT&T and Verizon ] focus a little more on DSL," said Carey, who nonetheless remains bullish on DirecTV’s HD offerings—130 channels starting next week— and their power to sway customers. Collins Stewart, which initiated coverage Fri of DirecTV with a ‘buy’ rating, is similarly bullish. The firm raised its 3Q estimates for DirecTV based on 2Q numbers marked by video adds that "are especially impressive given how disappointing other cable and satellite 2Q08 TV subscriber adds have been," wrote analyst Tom Eagan. Sanford Bernstein analyst Craig Moffett also likes DirecTV’s positioning, albeit with a proviso. "Despite our reservations about the long term prospects for satellite as a category, we believe DirecTV remains in a relatively low risk position," he wrote. Amid a market sell-off Thurs, shares of DirecTV rose 1.5%.