One of the best moves DirecTV (NYSE:DTV) made when hiring CEO Mike White a couple of years back was drawing him from the ranks of marketing. White was the grand poobah of marketing at Pepsi (NYSE:PEP). And in case you haven’t noticed, DirecTV’s marketing is more prevalent and more clever than the competition’s.
That’s not the only reason for its success, but it’s one of them. And DirecTV’s all-around success is why you should buy its stock over any other cable or satellite company’s.
Domestically, DirecTV netted 125,000 new subscribers in the fourth quarter, which outpaced rival DISH Network (NASDAQ:DISH), which added a meager 22,000. This is the usual course of events. DirecTV also netted 622,000 for the entire year, and it sells the heck out of its products, resulting in constantly increasing average revenue per user (ARPU). That measure is now at $101.38, up from the low-$70 range just a few years earlier.
It helps that the company owns the rights to all off-network National Football League broadcasts via its NFL Sunday Ticket package. The constant growth in ARPU helps offset DirecTV’s huge marketing costs. All of this comes amid an increase in net margins, from 16.2% to 17%.
But DirecTV’s real standout performance comes in Latin America, where it’s on fire. APRU there is increasing at twice the rate it is here, while the company netted almost 3 million new subscribers — 3 million! That explains the 42% annual increase in revenues.
When you examine the big numbers DirecTV delivers, it’s hard not to be flabbergasted. The operative word, as you’ll see, is “billion”: $27 billion in worldwide annual revenues. Net income of $2.6 billion. $2.4 billion in free cash flow. $5.5 billion in share repurchases (the company repurchased 124 million shares last year, decreasing its share count by 15%). And $873 million of cash on hand (well, that’s nearly a billion).
And now, Warren Buffett has loaded up on DirecTV stock, increasing his stake from about 0.6% to 3%. This occurred at the same time Buffett bought a stake in Liberty Media (NASDAQ:LMCA). Obviously, he’s been having lunch with John Malone.
Somehow, DirecTV still trades at only 10x this year’s earnings, despite income forecasts of 20% growth this year and next. Even backing out the earnings increase attributable to share repurchases, DirecTV remains a bargain to this investor.
As of this writing, Lawrence Meyers has sold naked puts against DirecTV. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.
