DirecTV: Surging Stock Price, Plenty of Potential

In October I wrote a post about Direct TV (DTV) and said "at $26 shares are fairly priced...should they dip to $20 again, you have a great buying opportunity". Well, in Jan. 2008 they did just that and are up 35% since then. (Latest Transcript)

After recent results, shares have even more upside. Back in October the gist of my post was that the scope of HD offerings from Direct TV vs cable would bring in scores of new customers. Since then, the company has dropped the price of the HD DVR it sells from $399 to $199, tempting even me to get it.

Then this week it announced the company added 275,000 net U.S. subscribers, well above analyst expectations of about 180,000, and increased its domestic subscriber base by 5.2% to 17.1 million.
It also announced a $2.5 billion dollar share repurchase plan (8% of market cap).

There are other potential earnings drivers down the road, such as a plan for video-on-demand and and internet over power line that are in testing. Conveniences of programming your DVR by cell phone or computer also give customers a wide array of features.

Shares could be bought on the next dip and held for the long term.

Disclosure: Customer only.

Comments

[guliamo]

Hi todd, you make some good points.. but with TV viewing on the decline and so many youngsters getting their content off the net.. I don't see the big opportunity in DTV... why even enter this sector especially these days when caution is recommended.. you made a nice play on the momentum, but I would take my money and park it somewhere else.. less stagnant.

[sbjforever]

Trouble with DTV as far as movies go - the main reason many use the service in the first place - is that shows are pushed. Annoyingly, there's no user selection of a movie a user would really like to see, even with Pay Per View. Ask yourself how often you want to see the movie DTV have decided you can watch?

Not so in the download world. For example, using the $230 Apple TV, a device about the size of a hardback book, the user downloads a movie of choice from 1000's, no differently than if it were a music track. And that, after having had the benefit of viewing the trailer!

Furthermore, using the same device and the same on-screen menu, one can browse and view YouTube clips in addition to one's iTunes Music Library, TV Show and PC/Mac photograph files!

[Prognostic]

DTV has a on-demand channel in Beta where you can browse from thousands of movies and pick one to watch on demand. It needs the DTV receiver connected to high speed Internet. I was thinking of buying the Apple TV until I saw this and why would I now need another box, another remote, to an already complicated setup? I have now a flat screen TV, Bose amplifier and speakers, Blueray DVD, DTV reciever, etc., etc., and adding one more component requires much thought.

[squawk]

DirecTV is presently firing on all cylinders simply because it has the most dedicated bandwidth to offer the broadest HD programming platform. The lead that DirecTV has over the competition in HD offerings is, in my opinion, a bit overblown, as the lion's share of programming on newly launched HD channels is minimal. Hopefully, this will change by 2009 when these newly launched HD channels have had the time to produce or purchase HD content. The amount of HD content on these channels in 2008 is slowly improving.

Where I believe the author is overly optimistic is on the VOD front. I own a DirecTV HD DVR. I've had access to DirecTV's beta VOD for about 6 months, and frankly, I hardly use it. Over 90% of what's offered is in SD (standard definition). As DirecTV delivers its VOD service over the Internet, it remains to be seen how successful it will be in delivering on a sizeable scale HD VOD content.

I believe the file size of an HD feature film is about half a gig (500 MB). While an HD movie might take 15-20 minutes to download, it might take several hours due to congestion over the network. In addition, it remains to be seen how the cable & telco carriers are going to respond to the demands DirecTV VOD model is going to place on their networks. Bottom line, I question at this point how successful DirecTV VOD service will be to lure additional customers who have been weaned on cable's VOD service for years.

[Satellite TV]

Vod is the one problem satellite companies have when going up against cable. They may have work-arounds, but not a true video on demand solution. Otherwise, DirecTV generally wins out in all other areas when going up against cable operators.