Dish competes mainly with
Time Warner Cable
in the pay-TV business. After significant net subscriber additions in the first quarter of 2010, Dish Network reported 19,000 net U.S. subscriber losses in the second quarter. By contrast, satellite competitor DirecTV reported net subscriber gains of about 100,000 in the U.S. last quarter.
Dish Network's subscriber losses are mostly due to the sluggish economy, which impacts the company's relatively more value-conscious customer base disproportionately. Dish also launched a new prepaid service offering last year that has increased the company's subscriber churn rate. And Dish has changed its strategic focus in recent quarters in an effort to balance revenue growth with profitability.
As a result, we have lowered the Trefis price estimate for Dish Network's stock from $27 to $25.84. Our complete analysis follows below.
Market share impact
Dish Network gained about 237,000 net new subscribers in the first quarter of 2010, which was a significant rebound from 2009. The company's second-quarter losses were quite small compared with the first-quarter gains. On balance, we expect slight market share gains for Dish Network in 2010. However, we expect Dish's market share to decline thereafter.
If the current trend of subscriber losses or low subscriber additions continues, Dish Network's pay-TV market share will suffer. And if Dish's market share declines slightly faster than we expect, there could be an additional downside of about 4% to our current price estimate.
You can drag the trend-line in the chart below to create your own share estimate for Dish Network and see how it impacts the company's stock price.
Factors depressing Dish Network's subscriber growth
Dish Network is a value service provider. Compared to DirecTV subscribers, Dish customers tend to be relatively more sensitive to the economic environment. Poor economic conditions tend to increase subscriber churn, which partly explains last quarter's net subscriber losses. Management does not expect the economy to rebound anytime soon.
As part of its value strategy, Dish launched a pre-paid service offering last year. Pre-paid subscription plans are subject to inherently higher churn rates, which also contributed to the net subscriber loss last quarter.
Finally Dish Network recently lost the AT&T and Century link channels to DirecTV. Although these reverses did not affect the company's second-quarter results, they are likely to impact subscriber growth going forward.
You can see
the complete $25.84 Trefis price estimate for Dish Network's stock here.
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