|Shares Out. (in M):||447||P/E||7.4x||6.2x|
|Market Cap (in $M):||7,400||P/FCF||6.4x||6.8x|
|Net Debt (in $M):||3,800||EBIT||1,990||2,220|
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Highlight of the quarter was that DISH grew its sub base by +26k net adds, vs. general consensus for a loss of subs on the order of ~100k. This was driven by both gross adds and churn:
The negatives are that, not surprisingly, DISH has had to pay for the better-than expected subscriber growth by giving up some of the economic value per sub (in the form of lower ARPU, higher SAC expense, etc.)
In aggregate, higher SAC (both on a per gross add basis as well as just because gross adds were higher than expected) and higher SG&A cost resulted in EBITDA coming in at $709mm, down -19% y/y (from $873mm prior year, the record EBITDA quarter) and down from $801mm prior quarter. I think investors will accept that in a pre-pay model subscriber-based business, if you outperform on sub adds you are going to (temporarily) under-perform on profits during the quarter, but still this provides some fodder for the bears.
My back-of-the envelope calculation based on Q2 subscriber economics suggests that the NPV of each subscriber is roughly $1,050 - 1,100 per sub. This compares to the SAC per Gross Add that DISH is paying (currently $708), suggesting that on the margin, it pays for the Company to be slightly more aggressive in campaigning to win subscribers - though I would caveat that the specific incremental NPV per sub add to acquire, for example, customers who only transitioned due to the digital transition and are very averse to paying up for services, may be much lower than this from a mix perspective.
At $1,050 per sub, my target price would be about ~$25.00, +25% from here.
Regarding TIVO, DISH provides a brief synopsis of the case, and goes on to mention that most recently on 8/3/09, the Patent & Trademark Office issued an initial office action rejecting the software claims of the TIVO patent as being invalid in light of two prior patents; this may provide some ammunition for DISH to argue in Federal Appeals Court that the work-around they engineered to get around the TIVO patent is in fact valid:
"On August 3, 2009, the Patent and Trademark Office (the "PTO") issued an initial office action rejecting the software claims of the '389 patent as being invalid in light of two prior patents. These are the same software claims that we were found to have infringed and which underlie the contempt ruling now pending on appeal. We believe that the PTO's conclusions are relevant to the issues on appeal as well as the pending sanctions proceedings in the District Court. The PTO's conclusions support our position that our original alternative technology is more than colorably different than the devices found to infringe by the jury; that our original alternative technology does not infringe; and that we acted in good faith to design around Tivo's patent."
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