DirecTV Disappoints

Updated from noon

DirecTV (DTV) beat fourth-quarter revenue forecasts Thursday but disappointed analysts with its subscriber growth.

The subscriber numbers suggested to at least one analyst that DirecTV, the nation's largest home satellite-TV service operator, is facing tougher competition from cable operators.

On a conference call with analysts, DirecTV CEO Chase Carey indicated that the company had deliberately cut back some of its marketing efforts toward acquiring higher-risk customers, and said the payoff would come in the form of a lower rate at which people drop the service in the future, known as churn.

Saying that churn rates and the cost of retaining customers have both been higher than expected, Carey forecast lower subscriber gains in 2005 and 2006, but reiterated DirecTV's longterm goal of ending up with 20 million subscribers nationwide. P/>Shares in DirecTV, which ended the year with 13.9 million U.S. subscribers, fell 50 cents Thursday, or 3%, to $15.30.

For the fourth quarter ended Dec. 31, DirecTV reported a loss of $283 million, or 20 cents per share, compared with a 22-cent-per-share loss in the fourth quarter of 2003. Analysts surveyed by Thomson First Call had expected an 8-cent loss per share.

DirecTV's bottom line was hurt, however, by a total of $262 million in pretax charges related to the expected sale of the company's Hughes Network Systems, and its ongoing shutdown of DirecTV Latin America's Mexico satellite operations.

If, however, one adds those one-time charges back into the company's reported $156 million operating loss before depreciation and amortization, the result is an adjusted operating income before depreciation and amortization of $106 million -- well below the First Call consensus forecast of $138 million.

Discussing a 29% decline in the company's U.S. satellite operations specifically, DirecTV cited increased subscriber-acquisition costs related to the company's record 1.1 million gross subscriber additions and an increase in the average number of subsidized set-top boxes and digital video recorders purchased by new subscribers. The OIBDA number also was hurt by an increase in the number of existing customers signing up for new DVRs and for equipment upgrades to receive new channels.

Companywide revenue at DirecTV rose to $3.36 billion for the fourth quarter, up from $2.75 billion in the fourth quarter of 2003 and the analysts' estimate of $3.32 billion.

But DirecTV's net subscriber additions of 440,000 for the quarter fell short of expectations. While that number was up from the 2003 fourth-quarter pro forma number of 361,000, it's below the consensus expectation of 543,500 compiled by SG Cowen analyst Tom Watts.