Can DIRECTV Continue Its Massive Run?

More subscribers, higher revenues for the existing ones -- the leading satellite TV provider is seeing a rare trend in today's traditional pay-TV industry. Can it last?

Feb 22, 2014 at 2:00PM

DIRECTV (NASDAQ:DTV) continues its upward trajectory, again flirting with its 52-week high and posting higher figures than Wall Street had expected. While the satellite giant's Latin American operations have been its selling point in recent years, this past quarter showed strong resilience in the mature U.S. market. DIRECTV is an easy company to understand with two parallel paths to success: tacking on subscribers by the hundreds of thousands in developing areas and increasing average revenue per unit, or ARPU, in the mature ones. While the ultimate future of pay television remains up in the air due to the advent of streaming services in the competitive landscape, investors can bet that this top-notch management team will guide the company forward regardless.

Strong results
DIRECTV had a great 2013. The company saw its Latin American business grow sales by 10% and its subscriber base by a net of 1.2 million. On the domestic front, the company posted 6% revenue growth on the back of the aforementioned ARPU growth -- 5.4% for the year.

Free cash flow increased an impressive 14% to $2.61 billion. The operating efficiency is impressive considering that DIRECTV's Latin American growth program involves much thinner margins as the company scales up rapidly and offers bottom-cost products to the underserved Latin American pay-TV market.

Perhaps the biggest news to come from DIRECTV this week was the authorization of a massive $3.5 billion share buyback. While the market at large tends to rally behind these moves that encourage a higher EPS in coming years, buybacks are only truly effective if the stock is fundamentally undervalued. DIRECTV CEO Mike White mentioned the intrinsic value of the stock in management's fourth-quarter comments, saying that he believed the company is trading at a substantial discount to its underlying value.

If the past year is any indication of coming performance, White may be right. But still, some big-picture questions linger regarding the business.

Looming ahead
It's not news, but streaming-video services continue to make tremendous gains in the traditional pay-TV market. Many cable businesses struggle with declining video subscriber counts on a consistent basis, growing their own sales via broadband products instead.

DIRECTV is rumored to be prepping a "game-changing" streaming service. Details are scarce, but management has described the product as one that has a similar user experience to Netflix or Hulu, but on a smaller, more targeted scale. If DIRECTV is successful in this, it will be the first cable or satellite company to put out a formidable product in the space. Comcast's Xfinity streaming service, while improving, is still a clunky, unpredictable experience.

Beyond a streaming service, there are other questions surrounding DIRECTV's future that do not involve ARPU or Latin American subscriber growth. Speculation ran throughout last year suggesting that DIRECTV and DISH Network would join forces, uniting the former's industry dominance with the latter's ambitious broadband plans. Depending on the ultimate outcome of the proposed Time Warner Cable and Comcast deal, we may see even more pressure on this theory in 2014.

In the meantime, DIRECTV is sticking to its core business and winning at it. It remains one of the only traditional pay-TV providers that is seeing more customers come through the door. Its Latin American presence dominates the competitive landscape. If the company continues its outperformance, the $3.5 billion-share buyback will prove valuable to shareholders. Overall, this is still one stellar company that is worth investors' attention.

The epic battle for viewers
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.

Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends DIRECTV and Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers