EchoStar Corporation (SATS) is in talks with French conglomerate Vivendi (VIVHY) to form a Brazil pay television joint venture that could boost revenue and profits in the near and long term. Despite a large increase in the share price of EchoStar, investors should be further rewarded going forward.
Reports have EchoStar hooking up with GVT, a wholly owned subsidiary of Vivendi, on the Brazil joint venture. GVT currently offers a triple play option (fixed phone line, television, internet) to Brazilian customers. The new venture into stand alone television could greatly increase EchoStar's international presence and put pressure on rivals like DIRECTV (DTV). With the 2014 World Cup and 2016 Summer Olympics both being hosted in Brazil, GVT and EchoStar are investing in Brazil at the perfect time.
GVT has over 530,000 subscribers to its triple play service in Brazil. The company is currently a smaller player in the country with coverage in 140 cities. However, GVT is expected to expand to 50 more cities and could see a huge boost to its subscriber numbers with a stand-alone television service. At the end of June, America Movil (AMX) led in Brazil with over 9 million subscribers. DIRECTV had 5.2 million subscribers in Brazil. Local company Oisa had 889,000 subscribers, but will likely be passed by GVT through its new expansion and television only plans.
GVT recently launched in Sao Paulo, which is Brazil's largest city. Brazil has a population of just under 200 million people. The opportunity is clearly there for EchoStar and GVT to do some damage. The move by EchoStar comes after it acquired over $77 million worth of satellite spectrum in Brazil. My estimate would be for the new joint venture to double GVT's 530,000 by this time next year. By the time the 2014 World Cup hits, the joint venture could have a similar number to DIRECTV with over 5 million subscribers. This move back in 2011 could now pay off huge for the small capitalization company, as it could become a major player in Brazil through its new joint venture. The real loser through this joint venture could end up being DIRECTV. Earlier, DIRECTV tried to bid for GVT unsuccessfully.
EchoStar has had success expanding its international presence through joint ventures. In Mexico, EchoStar has a joint venture using the name DISH Mexico with MVS Comunicaciones SA. That joint venture has 2.3 million subscribers in Mexico. Coincidentally, America Movil, who leads in Brazil, has a strong partnership with EchoStar in Mexico. America Movil also has the option to acquire a majority stake of Dish Mexico, if EchoStar obtains a license to offer pay television in Mexico.
In August, EchoStar subsidiary Hughes was selected by Media Networks for its Ka-Band Service in Latin America. Media Networks is a unit of large telecommunications giant Telefonica. "MNLA conducted a very careful evaluation of the major satellite networking systems available and found the JUPITER Systems to meet all of our stringent criteria. We are pleased to work with Hughes in this important project that will enable residential segments in Latin America to gain access to satellite broadband for the first time in the region," said Media Networks CEO Werner Schuler. The important thing there is the "first time in the region" comment. EchoStar continues to see its technology go to regions it has not been in previously. International expansion is certainly ramping up and should reward EchoStar shareholders.
EchoStar Corporation is split in three business segments (with TTM revenue as of 3/31/13):
· EchoStar Technologies: $1.68 billion
· Hughes Network System: $1.17 billion
· EchoStar Satellite Services: $0.28 billion
The company's smallest segment of satellite services is the one that is getting the boost from international sales. Hughes Network is rapidly expanding across North America and remains the continent's largest satellite broadband internet service provider with over 690,000 subscribers.
EchoStar has a huge customer base that includes recognizable names like ESPN, the United States Army, McDonald's, Burger King, Sprint, and Yum Brands. That base has been increasing and will continue with EchoStar's large $1 billion backlog for enterprise business.
Other catalysts going forward for EchoStar include:
· Possible new customer base in set top boxes: As the leader in set top boxes and key customers of Dish, Bell, and Telmex, EchoStar could see expansion as large companies like Comcast, Amazon, and others consider creating set top boxes for the living room.
· Sling Media expansion: EchoStar owns Sling Media, which is the inventor and patent holder of placeshifting technology. This technology continues to be used by more companies to connect phones, tablets, and televisions all together. Sling Media could begin seeing a strong royalty base from this technology.
· Launch of EchoStar XIX: In 2016, EchoStar is set to expand an already powerful satellite network with the launch of EchoStar XIX. The large satellite will cover internet for the United States, Canada, and Central America. This launch could greatly improve the coverage area of EchoStar and boost subscriber numbers in several regions.
Analysts on Yahoo Finance are not overly bullish on the growth prospects of EchoStar. The company is expected to post a loss of $0.20 for fiscal 2013. Revenue target for the year is $3.26 billion, a slight 4.4% increase from the previous year. In fiscal 2014, analysts see earnings of $0.29 per share and revenue growth of 5.3% ($3.43 billion). I think those estimates will be rather conservative if EchoStar can help GVT and its own joint venture get millions of subscribers in Brazil.
Shares of EchoStar Corporation are trading over $47 and inching ever closer to their 52-week high of $48.27. With proper coverage of this possible joint venture and strong earnings reported on November 11th, shares could end 2013 at over $50. I would be a buyer at these levels to capitalize on the coming international growth and long term catalysts.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SATS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.