DirecTV (DTV), the largest U.S. satellite- television provider, had its biggest drop in more than two years in Nasdaq trading after adding fewer U.S. customers than analysts estimated in the second quarter.
DirecTV said today it added 26,000 users in the U.S. and 472,000 in Latin America. The U.S. gains missed the average analyst estimate of 57,000, according to Ryan Vineyard, an RBC Capital Markets analyst in New York. The shortfall may have occurred due to a lack of special promotions in the quarter, said Tom Eagan, an analyst at Collins Stewart LLC in New York.
Investors may be concerned that customers are leaving for cable-TV carriers that offer TV service bundled with Internet access, a package that El Segundo, California-based DirecTV doesn’t offer, Eagan said.
“The bear case for DirecTV is that they’re structurally impaired versus a cable operator because they don’t have broadband,” said Eagan, who has a “buy” rating on the shares.
Churn, the percentage of customers who left the service each month, accelerated to 1.59 percent, higher than the 1.47 percent estimate of Citigroup Inc. analyst Jason Bazinet in New York. DirecTV Chief Executive Officer Michael White said the company has made “excellent progress in addressing” churn in July and expects “better” results in the third quarter.
DirecTV slumped $2.84, or 5.7 percent, to $46.63 at 4 p.m. New York time in Nasdaq Stock Market trading, the largest drop since February 2009. It has gained 17 percent this year.
A sluggish U.S. economy may also prompt consumers to pull back on paying for TV, Eagan said. The economy grew at a 1.3 percent pace in April-June following revised growth of 0.4 percent in the first three months of the year that was slower than previously estimated, the Commerce Department reported last week. The jobless rate is holding above 9 percent.
DirecTV’s net income climbed 29 percent to $701 million, or 91 cents a share, from $543 million, or 42 cents, a year earlier. Analysts projected profit of 85 cents a share, the average of estimates compiled by Bloomberg.
Sales increased to $6.6 billion from $5.85 billion, beating the $6.54 billion analysts projected. Subscriber growth in Latin America rose to a record, DirecTV said, predicting annual subscriber gains in the region will “meet or exceed” the company’s prior forecast of 1.25 million to 1.5 million.
“Latin America is still the jewel of DirecTV,” said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, who has a “market perform” rating on shares.
‘Looking’ at Hulu
White said acquiring Hulu LLC, the online video service that’s selling itself, is “an interesting opportunity, so we’re taking a look at it.” DirecTV has already taken steps to make its content available on the Internet, including developing “NFL Sunday Ticket To-Go,” which allows subscribers to watch all NFL games on Sunday on mobile devices.
White said he has yet to “form a judgment” about Hulu’s business model, which is “critically dependent on the distribution relationships” and contracts it has in place with content providers.
“There’s still more for us to learn,” White said. “I don’t think it’s kind of something we have to have, frankly.”
DirecTV spent $1.51 billion to buy back 31 million shares, part of a $6 billion repurchase program announced in February. The company plans to continue to buy back shares in the “same $100 million per week range,” Chief Financial Officer Patrick Doyle said on the conference call.
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