Television is changing. Faced with stiff competition from new kinds of media, TV companies are often forced to rethink their traditional business models. The challenge these companies face is often to remain competitive when much, if not all, content can be accessed through the Internet for free. One of the companies at the forefront of this development is DIRECTV (NASDAQ:DTV). The company is growing earnings impressively and has had a good run recently. Moreover, in my view it is trading at a bargain price right now despite the rally.
DIRECTV provides digital television in the US and Latin America, delivering digital entertainment programming to people’s homes mainly through satellite connections. It also owns a number of regional sports networks and has a large stake in the Game Show Network. The company has over 20 million subscribers and enjoys a generous market cap of around $32.3 billion. With a beta of .88, the stock isn’t too volatile. It is up about 15.9% in the last year, 12.8% year to date.
Earnings and Strategy
Despite huge changes in the traditional television industry, DIRECTV (NASDAQ:DTV) has been managing to deliver very impressive earnings over the last few years. EPS growth has easily outpaced the industry going back to 2010, and revenue growth has done the same since 2008 with the exception of a 2% lag in 2011. Annual EPS has consistently beaten analyst expectations since 2009, with EPS tripling in the same period to $4.44. Analysts are looking for $4.81 in 2013, with an expected 3-5 year EPS growth rate of 37.2%. The company capped off 2012 with a 25% beat in Q4.
One of the ways in which DIRECTV (NASDAQ:DTV) is trying to adjust to shifting consumer preferences is the introduction of a new DVR nicknamed the Genie, which increases the number of simultaneous HD recordings and available storage space. The move comes as competitor DISH Network Corp. (NASDAQ:DISH) released a DVR of its own called the Hopper, which allows consumers to skip through ads.
This is obviously a controversial step, but probably one that is necessary to compete with the popularity of watching content on the Internet, as the traditional advertising model is starting to become obsolete. In the words of Dish co-founder and chairman, “Customers skip commercials. We can’t ignore that fact.” In the last few years, DISH Network Corp. (NASDAQ:DISH) has been working on aggressively expanding its portfolio of spectrum assets, recently having showed interest in the purchase of around 24% of Clearwire Corporation (NASDAQ:CLWR)’s spectrum assets. Clearly, the company is looking to become a bigger player in the satellite arena.