DirecTV Posts Solid Growth Across Geographies

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Best Ideas Newsletter holding DirecTV (NYSE:DTV) posted solid first-quarter results last week as higher ARPU in the U.S. and strong subscriber additions in Latin America drove solid revenue growth. Revenues increased 8% year-over-year to $7.6 billion, which modestly exceeded consensus estimates. Adjusted earnings surged 34% year-over-year to $1.43 per share, smashing consensus expectations as the company continued to lower its share count. Over the past year, DirecTV has shrunk its float by 15%. Free cash flow dipped to $710 million from $952 million during the same period ago, but management noted that was mostly attributable to unfavorable working capital timing in the U.S.

On a geographic basis, we were incredibly pleased with the performance of DirecTV Latin America, which posted 16% year-over-year revenue growth. ARPU took a huge hit from unfavorable currency impacts in Venezuela, Brazil, and Argentina, falling to $54.23 compared with $60.59. DirecTV also took at $166 million one-time charge for the revaluation of Venezuelan monetary assets - a common thread we've seen throughout earnings season. We aren't too worried about this hiccup, as we anticipate ARPU will continue to rise going forward, especially as services like hi-definition take a stronger hold. The segment's adjusted OPBDA (operating profit before depreciation and amortization) margin held steady at 31.6%. Free cash flow turned positive to a modest $10 million, and the segment also added 583,000 net new subscribers. Churn increased modestly to 1.88% which management attributed to increased competition in Brazil. DirecTV Latin America could be a huge beneficiary of increasing wealth in Mexico and Brazil.

In the United States, revenue grew 5% year-over-year to $5.8 billion as the firm only added 21,000 net new subscribers. Since we weren't expecting strong subscriber additions in the U.S., we were pleased to see ARPU jump 4% to $96.05. DirecTV subscribers are becoming more willing to download pay-per-view movies, and the company has also seen more subscribers opt for DVRs and HD programming. We believe this trend will continue, and we think it will help churn remain relatively low. Churn totaled just 1.45% during the quarter. Improved customer service and higher ARPU boosted operating margins, which increased 40 basis points year-over-year to 19.3%, while the company's OPBDA margin jumped 70 basis points to 26.3%. For a virtually no-growth business, we thought U.S. results were superb.

Overall, we liked DirecTV's first quarter, and we believe shares continue to look attractive. Management reiterated its target of $4 billion in share repurchases for the year, and since management tends to buy aggressively at attractive prices, we applaud the move. We hold shares in the portfolio of our Best Ideas Newsletter, and we think additional upside remains.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.