This company is at the wrong stage of its existence to worry too much about debt. The name of the game in this business is subscriber growth. If they can reach even 4 million subs within 5 years, this is a great business. They added 75k in August of this year alone, which is especially impressive because wall street considers August the "summer doldrums" month.
Whether or not DISH sub growth begins to track predictably with traditional CE selling seasons over the long haul remains to be seen, but 75k in August would lead you to believe they'll get 500k between September and December. Agressive numbers given their past growth, but hints have been made that September numbers could be over 100k.
Even more conservative observers would say it is reasonable to expect DISH will have 1 million subs by the end of 1997. At one time, that was considered their break-even, but that number is probably more like 1.5m or even 2m, in light of their recent maneuverings. Still, that is not bad when you consider that DIRECTV originally needed 3m subs to reach break-even and now that number is probably closer to 4m.
For instance, lets say that DISH at some future point has 2m subs, at an average revenue per sub of $38 and a 40% EBIDTA. That earns them $30,400,000 programming revenue per month, or a programming EBIDTA of 364,800,000 annually. This should be sufficient to support their debt levels, and conservatively, they should reach those sub levels between December 1998 and June 1999.
More good news for DISH came recently with the J.D. Power consumer satisfaction survey for cable TV and satellite. While Primestar had the top score of 137, they give the hardware away. DISH, while still building its customer support infrastructure, had an impressive 134 rating to take 2nd place. DSS, comprised of DIRECTV and USSB, had a rating of 126 - exactly the rating for satellite as a whole. What's even better for DISH is that the top cable company, COX, had a rating of 109. Since DISH has positioned itself as far and away the most agressive competitor to cable, these are the type of satisfaction scores that will fuel future sub growth.
All in all, DISH has come through the failed AskyB merger a more focused, better positioned company than most would have expected. And, without the baggage of Fox and its programming carriage issues, it has been able to move agressively against cable in, ironically enough, just the way Preston Padden had predicted that SKY (the name for the merged AskyB-DISH combination) was going to. Years from now (and there is still a long way to go, make no mistake) some may look back at that failed merger as the best thing that ever happened to DISH.
Where does that leave the stock? Long term, it will probably be decent but unspectacular, because it will undoubtably continue to borrow to build additional space assets and expand its offerings (its bonds, however will perform extremely well because they offer a much greater security than many other comparitive high-yield offerings). Short term, however, because:
a) DISH was really oversold, having been beaten up in the fallout of the failed AskyB merger; and
b) all the great news, including the good sub growth numbers and the positive J.D. Power numbers; and
c) pre-launch buying setting in...
DISH stock has been putting together an impressive rally. If you look at the charts before and after the past two launches, 4-5 points of the recent rally are probably due to the launch and the rest to recent good news unrelated to the launch. I would expect that when the smoke clears from the launchpad and the word comes back that the initial system checks show successful deployment, DISH should get another 4-5 points. That would put it at 28-30, plus or minus for sub growth numbers.
If they actually do something spectacular like 120k in September (which seems high, but just for arguments sake), they'll probably make that announcement at the launch if they can have final figures ready, and reaction will be over the top - probably something like an initial 2-5 points incrementally, although it will meet resistance at 33 (where a lot of people bought last fall, only to see it go to 10 7/8!) and will slide back to 30-31.
THIS IS ONLY ONE MAN's OPINION. Take it for what it is worth, but I am long in the stock, so I am putting my money where my posts are. I hope that you find this analysis helpful...
Regards,
NOEL |
