Dish Network: Never Mind Low Subscriber Growth, It’s All About Spectrum

Dish Network


More subscribers generating more revenue — this is what Dish Network Corp. (NASDAQ:DISH) delivered when it reported full-year results on Friday morning, and really, what more could the market ask for? Shares climbed as much as 4.4 percent on the news, adding to a rally that has sent the stock up more than 62 percent over the past 52 weeks.

But the results, as good as they were, didn’t quite live up to analyst expectations. Top-line growth was sluggish, as Dish Network added just 2.67 million gross net pay-TV subscribers for the year, down from 2.74 million additions in 2012. Dish Network ended the year with 14.057 million pay-TV subscribers, up just slightly from 14.056 million at the end of 2012. The company reported full-year revenue of $13.9 billion, up 5.5 percent on the year but short of the mean analyst estimate of $14.35 billion.

The bottom line was a better picture. Net income increased 26.8 percent to $807 million, and diluted earnings of $1.76 per share beat the mean analyst estimate of $1.57 per share. Average revenue per user for paid TV subscribers increased 4.4 percent to $80.37 for the year. On the downside, pay-TV average monthly subscriber churn increased slightly, to 1.58 percent from 1.57 percent.

Trefis calculates that Dish’s paid satellite TV service accounts for about 68 percent of the company’s valuation, making the slowdown in subscriber growth troubling. At 14.057 million, Dish actually has fewer pay-TV subscribers than it did in 2009, and at $866, the average acquisition cost per subscriber is up 12.5 percent from 2011. This slow growth has been attributed to saturation of the pay-TV market and the emergence of competitors such as digital video streaming service Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).

But all this is secondary to how Dish positions itself in the wireless market. The company has made waves in pursuit of a possible acquisition of a wireless carrier such as T-Mobile US (NYSE:TMUS), and Dish has reportedly been talking with T-Mobile parent company Deutsche Telekom AG. This and speculation about how Dish will monetize its spectrum over the long term are what’s really driving the company. As Chris King, an analyst with Stifel Financial Corp., told Bloomberg: “That’s all that matters for them right now. They are not being valued solely on their operations any longer.”

While pay-TV subscriber growth was slow, Dish more than doubled the number of broadband subscribers it had at the end of 2013 compared with 2012. Dish reported 436,000 broadband subscribers at the end of the year, up from 183,000 at the end of 2012.

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