Are DirecTV’s Domestic Struggles Enough To Slow It Down?

DirecTV (DTV.DL) is performing well in Latin America. However, in the United States DirecTV expects programming costs to grow faster than average revenue per unit. NFL Sunday Ticket plays a big role in this, but DirecTV is also seeing higher transmission fees for carriage of local channels.

This challenging environment has led DirecTV toward some very specific strategies, which will be paraphrased below. We'll then take a look at DirecTV versus its peers in order to determine whether or not DirecTV is likely to present the best investment opportunity in its group. 

Mature market 
DirecTV must be highly creative in order to find ways to drive growth in the United States. What might surprise you is that DirecTV isn't focused on going after new customers. It has shifted its focus toward existing customers. This doesn't mean that the revenue growth potential is dead in the United States. DirecTV looks to impress its customers enough that they will be willing to upgrade their services. 

DirecTV will also look for new revenue streams in bars and restaurants, where it only has a small presence. DirecTV feels it can be effective in this market by offering compelling bundle packages.

All the while, DirecTV aims to cut costs by "getting it right the first time." This pertains to installation and service setup being done correctly on the first visit, which will reduce call volumes and service calls. This, in turn, would reduce costs. DirecTV will also consider cutting less popular channels if carriage costs aren't worth paying, and it seeks to package channels more effectively so customers can watch more of what they want instead of paid-for channels being wasted.

DirecTV has three key initiatives that are broken down in fine detail on the company's website. We'll cover the basics, but let's begin with those three key initiatives:

• Transform Customer Experience
• Advance Entertainment Experience Inside and Outside the Home
• Strike Balance Between Growth and Profitability

Transform customer experience
DirecTV aims to transform the customer experience by monitoring customer feedback from its U.S. subscribers and then altering its offerings based on that feedback. If you happen to be a subscriber, your feedback does matter. To measure customer feedback, DirecTV also uses the Net Promoter Score, which indicates promoters (those who would recommend the service to a friend), neutrals (subscribers who have no opinion on the service), and detractors (those who spread negative opinions about the service and have the potential to negatively impact the top line).

DirecTV also aims to simplify its sales process, strengthen bundle offers, and identify improvement opportunities. 

Advance entertainment experience inside and outside the home
DirecTV made a big move in this area by launching DirecTV Genie in 2012, which is capable of recording five high-definition channels at once. Premium DirecTV members can now also stream HBO GO, Max GO, Showtime Anytime, Starz Play, and Encore Play. Going forward, DirecTV intends to expand its DirecTV Everywhere capabilities and deliver a user interface that outshines its competitors with united search and discovery across multiple screens. 

Strike balance between growth and profitability
With costs rising, revenue growth is imperative. DirecTV looks to accomplish this goal through responsible pricing, and by maximizing ancillary and non-residential revenue opportunities. DirecTV will continue to push instant offerings of same-day DVD releases through DirecTV Cinema in order to drive demand. It also looks to increase advertising revenue by offering advertisers locally targeted ads on individual DVRs.

In order to cut costs, DirecTV is limiting its credits and promotions. For instance, it has eliminated its Free HD for Line and low-cost Entertainment Package. This is expected to increase average revenue per unit over the next several years.

Now let's see how DirecTV stacks up against its peers.

Two out of three ain't bad
Despite domestic challenges, DirecTV has still managed to outperform Comcast (CMCSA -0.52%) and Dish Network (DISH) on the top line over the past year:

DTV Revenue (TTM) data by YCharts

While DirecTV has managed to grow its bottom line over the past year, but Comcast has held its own. And it recently delivered a 5.2% increase in revenue for the third quarter, with operating cash flow improving 10.5%. The 2012 London Olympics played a role, but Comcast consistently finds a way to get the job done. Comcast CEO, Brian L. Roberts, had this to say about the most recent quarter: "NBCUniversal delivered solid performance in every one of its segments, with healthy growth in revenue and double-digit cash flow growth, adjusting for the results of the Olympics last year." 

Dish Network's Hopper has been well received, which leads to future top-line potential. The Hopper was recently enhanced with home automation technology, thanks to Control4 Corporation. This will allow users to operate the Hopper via a Control4 remote, touchscreen, or smart phone application. 

Comcast has been the top performer in this group on the bottom line over the past year: 

DTV EPS Diluted (TTM) data by YCharts

Looking at some key metrics, one conclusion can be drawn:

The conclusion is that Dish Network isn't likely to offer as much potential as DirecTV or Comcast. Dish Network sports a profit margin of just 1.79%, it's the weakest performer on the top and bottom lines over the past year, and it offers no yield, yet it's trading at a premium to its peers. As far as DirecTV and Comcast are concerned, they're both solid fundamentally. While DirecTV is growing the fastest on the top line, Comcast is still growing and it offers a decent yield.

The bottom line
DirecTV is dealing with a challenging environment in the United States, but it's not challenging enough to slow the entire operation. DirecTV continues to grow its top and bottom lines, and it's trading at an appealing valuation making it definitely worth a look for Foolish investors. As always one should always do their own research before making investment decisions.