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Customer Growth Brightens DirecTV

The satellite-TV shop posts a surprising increase in users, though higher expenses cut profits.

DirecTV

(DTV)

blew past subscriber growth targets in the fourth quarter as its high-definition video offering continued to lure customers away from cable companies.

The El Segundo, Calif., satellite-TV broadcaster added 275,000 net new users in the fourth quarter and dropped its monthly defection rate, or churn, to 1.42%, an eight-year low. Analysts had expected DirecTV to add about 265,000 new subscribers.

Investors had started to move out of the satellite names like DirecTV and rival

EchoStar

(DISH) - Get DISH Network Corporation Class A Report

on fears that consumer spending was starting to cool off. The surprisingly strong growth, however, sent DirecTV shares up 59 cents, or 2.5%, to $24.47 Wednesday.

Still, DirecTV's bottom line was hurt as expenses soared in the quarter, with heavy advertising pushing subscriber acquisition costs up 21% over year-earlier levels. DirecTV posted fourth-quarter earnings of $348 million, down from $356 million in the year-ago quarter.

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Earnings per share were 30 cents, a penny higher than analysts had estimated, according to Thomson First Call.

Sales for the quarter surged more than 16% from a year earlier to $4.88 billion. Analysts had forecast $4.76 billion in revenue for the fourth quarter.

The satellite-TV shops have been effective in selling the promise of better picture quality to consumers looking to fill their magnificent new high-definition flat screen TVs.

The success of the sales pitch has put pressure on cable companies. Big players like

Comcast

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and

Time Warner Cable

(TWC)

have promised to boost their HD video offerings, but the push requires heavy spending to expand network capacity. Cable investors don't exactly relish another round of upgrade spending just to keep customers from unplugging the service.