Dish Network Misses Estimates but Pay-TV Subscriber Losses Improved

Cable company Dish Network (DISH) reported its second-quarter 2019 results on Monday. Dish’s stock fell 0.7% in the after-market trading after earnings lagged analysts’ estimates in the quarter. Meanwhile, revenues beat the Wall Street estimates on Monday. Though the US satellite TV service provider lost pay-TV subscribers in Q2, the loss was narrower than analysts’ expectations.

Dish stock lost 3.11% on Monday and closed at $38.28. On a year-to-date basis, Dish stock gained 53.3%. In comparison, the S&P 500 was down by 0.16% on a year-to-date period as of July 29.

Dish Network’s earnings and revenue

Dish Network posted adjusted earnings of $0.60 per share in Q2 2019. The company’s profits were lower than the analysts’ estimates of $0.65 per share. Earnings also declined by 27.7% YoY due to a fall in revenues. The loss of satellite service subscribers led to a decline in both earnings and revenues in the quarter.

Dish Network revenues dropped about 7% YoY to $3.21 billion in the second quarter. Notably, the rate of the revenue decline was lower in the second quarter than the first quarter’s decline of 7.8%. Notably, Dish Network’s revenues have been declining on a YoY basis for past 11 straight quarters.

Dish Network Misses Estimates but Pay-TV Subscriber Losses Improved

Factors leading to a decline in revenues

The decline in Q2 revenues was due to a drop in DISH TV subscribers. However, a higher pay-TV ARPU (average revenue per user) and growth in Sling subscribers added to the revenues in Q2. Dish’s pay-TV ARPU grew on the back of higher programming prices of DISH TV, and higher revenue in ad sales at both DISH and Sling TV. A higher mix of Sling subscribers in the overall pay-TV customer base offset the pay-TV ARPU growth in the quarter.

The removal of AT&T’s HBO (Home Box Office) channel due to a carriage contract dispute also hurt the subscribers as well as revenue in the quarter. The company’s conflict started with AT&T’s HBO channel in October 2018. Dish subscribers could not watch the final season of Game of Thrones, which released on April 14.

Loss in pay-TV subscribers

Like all satellite TV providers, Dish Network is also struggling with declining pay-TV customers. Dish has lost pay-TV customers for the past six quarters due to cord-cutting. Notably, pay-TV companies are facing a decline in the demand for subscription-TV packages. Consumers are shifting to fast-growing OTT (over-the-top) online video streaming services provided by streaming giants like Netflix and Amazon Prime.

Dish Network Misses Estimates but Pay-TV Subscriber Losses Improved

Comcast (CMCSA) lost 209,000 residential video customers in Q2 2019. Charter (CHTR) lost 150,000 video customers in Q2 2019 in comparison to the year-ago lost customers of 73,000. The US’s second wireless carrier, AT&T (T), lost nearly 1 million video subscribers in the second quarter.

However, during the second quarter, the company lost only 31,000 pay-TV subscribers. In comparison, Dish lost 259,000 subscribers in the first quarter and 151,000 subscribers in the year-ago quarter. Analysts had also anticipated subscriber losses of 252,000 subscribers in Q2. At the end of the second quarter of 2019, Dish Network had 12.03 million net pay-TV subscribers, down from around 12.06 million customers in the first quarter.

Amid falling pay-TV subscribers, Dish Network is focusing on its streaming substitute Sling-TV. The company added 48,000 net Sling subscribers, which ended with 2.47 million Sling TV subscribers at the end of the second quarter.

Dish Network as a fourth wireless carrier

On Friday, Dish Network agreed to buy assets from T-Mobile (TMUS) and Sprint (S), after the US Justice Department approved the $26.5 billion merger. The telecom companies divested prepaid assets include Boost Mobile, Virgin Mobile, and other prepaid businesses and wireless spectrum to create a fourth US wireless carrier. Dish Network would buy Sprint’s 800 MHz wireless spectrum for nearly $3.6 billion, and prepaid business for $1.4 billion. T-Mobile and Sprint expect the deal to close in the second half of this year.

Dish Network’s valuation

Dish Network’s near-term sales are projected to decline on a year-over-year basis. The company’s revenues are also expected to fall by 8.1% and 4.7%, respectively, in 2019 and 2020, in comparison to a fall of 5.4% in 2018.

Dish Network stock currently trades at 15.5x its 2019 estimated EPS of $2.47 and 19.6x its 2020 estimated EPS of $1.95. Analysts expect a decline of around 17.6% and 21.3% in 2019 and 2020, respectively.

Analysts’ recommendations on Dish Network

Out of the 19 analysts tracking Dish Network, seven analysts have rated the stock with a “buy” rating, while eight rated the stock a “hold.” Four analysts have recommended the stock with a “sell” rating. The analysts’ average target price stood at $47.17, which indicates that the stock has an upside potential of 23.2% from current levels.