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DirecTV (NASDAQ:DTV), is the largest satellite pay-TV provider in the U.S. Its main competitors in the pay-TV business include Dish Network (NASDAQ:DISH), AT&T (NYSE:T), Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC) and Verizon (NYSE:VZ).

Management recently reported that DirecTV’s advertising revenues rebounded in the second quarter of 2010. Going forward, we see an opportunity for DirecTV to increase its advertising revenue per subscriber even if the company’s market share remains flat.

As a result, we have raised the Trefis price estimate for DirecTV’s stock from $36 to $38.53. Our analysis follows below.

DirecTV’s ad revenues have room to grow

To date, DirecTV’s advertising revenues have grown as the company added subscribers at a fast pace and increased its overall market share. Going forward, we expect DirecTV’s share of the U.S. pay-TV market to hold steady at about 18%. Even so, we’re bullish on the company’s advertising revenue growth potential.

We expect DirecTV’s ad revenues to grow as the global economy improves. You can drag the trend-line in the chart below to create your own ad revenue growth forecast for DirecTV and see how it impacts the company’s stock price.

DirecTV has historically lagged behind its cable competitors in terms of leveraging its audience to generate advertising revenue. In 2009, DirecTV’s ad revenue per subscriber was an estimated $79, significantly less than comparable extraction rates at cable companies.

Targeted marketing

In the past, DirecTV has broadcast uniform content and advertising across various markets. As a result, advertisers with limited market reach have not been able to advertise efficiently and users have had to watch some irrelevant ads. However, the company is working on adding local advertising capacity to its platform. This will likely help DirecTV attract more local advertisers.

The company is also developing interactive advertising technology that should further strengthen its ad business.

Disclosure: No positions

Source: How DirecTV Can Grow Its Ad Revenues Despite Flat Market Share