When it comes to Dish Network (NASDAQ:DISH) the haters have it right. Dish stock still is a little too risky.
DISH lost a net 334,000 subscribers in its recent disappointing quarter, worse than the 264,000 analysts had expected, as viewers dropped the service in response to content cutbacks. DISH no longer offers AT&T’s (NYSE:T) HBO and Spanish language broadcaster Univision because of disputes over retransmission fees.
The growth in cord-cutters who quit pay TV services like DISH for cheaper alternatives only makes matters worse for the company.
CEO W. Erik Carlson warned that the customer losses would continue in April if HBO isn’t restored in time for the new season of “Game of Thrones.” The odds are slim that any of the defecting customers will return if DISH can ever come to terms with the content providers. Given the plethora of TV-watching choices available to consumers, why would they bother?
DISH Valuation
To be sure, DISH stock is dirt cheap, trading at a multiple of 10.79 times this year’s earnings. Wall Street analysts have an average 52-week price target of $45.90, more than 40 percent higher than where it currently trades. However, the stock, which lost ground recently after posting disappointing earnings, is a “value trap.”
While DISH Chairman Charlie Ergen is a billionaire for a reason, he has made his share of bone-headed moves including his $228 million acquisition of Blockbuster, which he planned to turn into a rival to Netflix (NASDAQ:NFLX). Of course, that didn’t happen and the Blockbuster brand is only a memory now. His current plan to convert DISH into a 5G player won’t be easy to pull off or cheap.
As CNBC noted in July 2018, Ergen has spent nearly $20 billion on the wireless spectrum that he plans to use to build a 5G network to compete for subscribers against AT&T, Verizon (NYSE: VZ) and a merged Sprint (NYSE:S) – T-Mobile (NASDAQ: TMUS). As a result, DISH’s balance sheet is weighed down with more than $15 billion in debt, more than seven times its cash position.
Moreover, Ergen’s estimates that the 5G network will cost $10 billion to create, less than half the $25 billion figure analysts estimate. According to Charlie Gasparino of Fox Business, FCC Chairman Ajit Pai is not pleased with the pace of DISH’s 5G deployment.
According to Gasparino:
“If Dish doesn’t meet a 2020 government mandate for the buildout that covers a substantial part of the U.S. population—or convince President Trump’s FCC to give it an extension–it faces the possibility that the federal government will pull some of its wireless licenses leaving the cash-strapped company billions of dollars in the hole.”
Veteran telecommunications analyst Craig Moffett also is a skeptic, noting in a 2018 client note:
It’s a Hollywood-worthy script. … A multi-billionaire is risking everything to recapture the entrepreneurial glories of his early days in satellite TV. To succeed, our protagonist will have to navigate a murderers’ row of cord-cutting, groaning debt obligations, and an FCC buildout requirement that could render some of his most precious assets worthless.”
Not surprisingly, Dish Network told the network that it expects to meet its mandated milestones.
Challenges Abound for DISH
Though the company’s Sling TV was the first so-called “skinny bundle” when it entered the market in 2015, it now has plenty of company. Competition for the cord-cutting market is heating up thanks to rivals such as AT&T’s DirecTV Now, Hulu Live With TV and Alphabet’s (NASDAQ: GOOG) YouTube TV.
In a note to clients last year, Macquarie Capital Analyst Amy Yong predicted that Sling TV’s growth will slow and that the service will eventually be eclipsed by DirecTVNow and Hulu Live With TV, which now has 1 million subscribers.
Media reports indicate that YouTube TV has about 800,000 paying customers. YouTube TV reportedly loses money, so it wouldn’t surprise me if other skinny bundles are in the same situation.
Competition for Cord-Cutters
Going forward, the only way these cord-cutting services will be able to grow will be to steal each other’s customers by offering deep price cuts. That’s great news for consumers and bad news for shareholders of DISH and other providers.
In short, the risks around DISH stock are too numerous and serious for investors to ignore. This is a stock that should be avoided.
Jonathan Berr doesn’t own shares of any securities discussed here.
