A Growing Entertainment Provider
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
DirecTV (NASDAQ: DTV) is just a cable company to many people. But in actuality, it’s the largest satellite television provider in the United States. Its 20 million subscribers far exceeds the 14.1 million subscribers for Dish Network (NASDAQ: DISH). DirecTV has also consistently improved its revenue and earnings over the past three years, whereas Dish saw a decline in earnings in 2012. DirecTV is appealing for many other reasons as well.
Trusting top investors
Billionaires Warren Buffett and Mason Hawkins have achieved what very few others have through investing. Great stocks like Coca-Cola, ExxonMobil, and Procter & Gamble continue to rise for decades because they have great management. Warren Buffett and Mason Hawkins have succeeded for the same reason.
Betting on an investor with a stellar track record is just like betting on a company with a stellar track record. In other words, you should strongly consider investing in companies that these billionaires invest in.
They might not always be correct, but their experience and knowledge are likely to help you outperform. With that in mind, Warren Buffet’s Berkshire Hathaway recently increased its DirecTV stake by 10% to 37 million shares. DirecTV is also Mason Hawkins’s Southeastern Asset Management’s fourth-largest holding.
According to Nielsen, the number of households with a television has declined over the past two years. You might think this would be a negative for a company like DirecTV but it has increased its net subscribers and average revenue per user in the United States and Latin America over the same time frame.
In the United States, an emerging threat has been online video streaming services. It has been reported that DirecTV is interested in purchasing Hulu for $1 billion. This would put DirecTV ahead of the industry curve, and it would give DirecTV access to 4 million Hulu subscribers. DirecTV would happily deliver more content over the Internet since it’s cheaper than delivering content to televisions via satellites.
In Latin America, the main competition stems from bundle packaging. Traditional cable and satellite television have arrived in Latin America much later than the United States. Though the competition is increasing, DirecTV still sits at the top of the mountain.
Regardless of the geographic location, DirecTV has made an impact at business locations. According to DirecTV, 78% of business subscribers believe that DirecTV programming increases their business. This includes bars, restaurants, offices, stores, gyms, hotels, and hospitals.
Other selling points for DirecTV include DirecTV Everywhere and Genie. With DirecTV Everywhere, viewers can watch what they want whenever they want on their mobile device. Genie is for the home, and it allows viewers to digitally record up to five shows at once in up to eight rooms at once.
DirecTV vs. peers
Despite the saturation of the United States television market, DirectTV has managed to record a revenue CAGR of 11.3%. Though DirecTV doesn’t offer dividends, it consistently buys back shares, which reduces the share count and helps prop up earnings.
It has already been established that DirecTV is a better investment option than Dish, but what about Time Warner Cable (NYSE: TWC), which currently yields 2.60%? The chart below shows how these three stocks have performed over the past three years:
As you can see, Investors would rather have owned DirecTV than Time Warner Cable over the past five years. At the present time, DirecTV is trading at 13 times earnings and Time Warner Cable is trading at 15 times earnings, so this isn’t likely to factor into your decision moving forward. Margins are also similar.
Time Warner Cable is focusing on high speed service as a growth catalyst. Whether this strategy will be effective over the long haul remains to be seen. Then there's the Liberty Media stuff. 27% of Charter Communications is owned by Liberty Media and the rumor is Charter Communications would like to buy Time Warner Cable. Now Time Warner Cable is massive, around $33 billion, so such a deal could bring uncertainty to the stock.
Getting back to Dish, it would like to acquire a nationwide wireless network to better compete in the future. Thus far, that quest has proved fruitless as Dish recently withdrew its offer for Clearwire. Dish is also trading at 38 times earnings, which makes it very expensive compared to peers.
DirecTV and Time Warner Cable seem to be a bit more established than Dish. And while choosing between the two might seem difficult, DirecTV has outperformed Time Warner Cable for many years. Confidence from billionaire investors and moves to stay ahead of industry curves, are also major positives. Overall, maybe you should take a closer look at DirecTV.
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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends DirecTV. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!