Dish Network Corp (NASDAQ:DISH) beat quarterly earnings estimates but did so in pretty mixed fashion, and that makes it a long shot for DISH stock to break out of an extended period of underperformance.
DISH — the second-largest U.S. satellite TV provider — is coming under the same sort of cord-cutting pressure as its cable counterparts. The emergence of video offerings from Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN) and Hulu, LLC are chipping away at the DISH subscriber base.
DISH is fighting back with its own online streaming video service — known as Sling TV — but it’s only a few months old, and that makes it too soon to tell if it can become a significant source of revenue. DISH didn’t reveal how many customers have signed up for Sling TV since its January launch.
In the meantime, DISH has had little choice but to raise prices in the face of subscriber losses. DISH lost about 134,000 customers in the quarter, a painful reversal from last year when it added 40,000 subscribers in the first quarter.
Indeed, were it not for a price hike to start the year — and contract disputes with Fox and other content providers that lowered programming costs — DISH wouldn’t have topped Wall Street’s estimate for the quarter.
That’s troubling, because DISH can’t hike prices again anytime soon. Moreover, fighting with content providers isn’t sustainable quarter after quarter. It might lower costs in the short run, but it also angers customers who can’t see their favorite stations.
DISH Earnings a One-Time Pop
So, although bottom-line growth looked good, it’s not the start of a trend. For the most recent period, net income jumped to $351 million from $195.3 million a year ago. Earnings came to 76 cents per share, which blew away the Street’s forecast for 40 cents a share, according to a Thomson Reuters survey.
That’s a huge earnings beat, but as noted above, it doesn’t mean all that much. That explains why Dish Network stock slumped on the earnings news.
It also didn’t help that revenue rose only about 3% to $3.72 billion, which missed analysts’ average estimate for $3.74 billion in revenue.
As much as DISH is struggling to retain subscribers, the biggest weight on DISH stock this year has been a federal investigation into DISH Network’s bidding strategies in a recent radio spectrum auction.
The fact that DISH has amassed $50 billion in spectrum to build its own data and voice network is also concerning. True, DISH has to do something to make up for a core business that’s in secular decline, but diving into competition with cable and telecom companies is a high-risk endeavor. It’s not like the cable companies are having a good time these days.
If nothing else, the spectrum makes DISH more attractive to a potential suitor, and with consolidation rife among cable companies and telcos, a merger or acquisition remains the best hope for a quick turnaround in DISH stock.
Take out the spectrum, and all that’s left is a business in an irreversible decline. That’s a risk-reward profile few investors seek out in such a slow and stodgy sector.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
