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DirecTV (NASDAQ:DTV) is the biggest satellite pay-TV provider in the US. It competes with other satellite and cable providers like Dish Network (NASDAQ:DISH), Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC). The company added about 939,000 net subscribers in 2009 while maintaining growth in its average revenue per user [ARPU].

The company expects to grow revenues in the future by focusing on ARPU growth more than growth in the number of subscribers. We have updated the Trefis price estimate for DirecTV’s stock from $29.52 to $32.26, based in part on higher expected subscriber fees and more premium (HD-DVR) subscribers.

Below we highlight where growth in DirectTV’s ARPU is likely to come from:

HD-DVR Subscribers Pay More

DirecTV will continue to focus on quality subscribers who tend to pay extra for its advanced services like High-Definition [HD] and Digital Video Recorder [DVR] service. In the fourth quarter of 2009, about 70% of new subscribers signed up for HD and DVR services with overall HD-DVR penetration amongst DirecTV’s subscriber base amounting to about 60% (~2% more than previous Trefis expectations).

We expect DirecTV’s HD-DVR penetration to increase to 80% by the end of the Trefis forecast period. Below you can see how DirecTV’s stock price could be impacted if HD-DVR penetration were to increase more than we forecast.

New Premium Services Expected

DirecTV plans to install its advanced single wire multi-switch [SWM] dish for its HD subscribers in order to facilitate the introduction of new services in the near future. These new services include mulit-room viewing and new broadband applications.

The company will also launch DirecTV Cinema, a movie service that will allow subscribers to watch certain films through DirecTV as soon as they are released on DVDs. In summary, DirecTV is increasingly focused on premium customers who are likely to pay for advanced services that will drive up DirecTV’s average revenue per subscriber and help DirecTV to grow its revenues.

For additional analysis and forecasts, here is our complete model for DirecTV’s stock.

Disclosure: No positions

Source: DirecTV's Focus on Premium Customers Will Help Grow Its Revenue