It wasn't news the financial community wanted to hear from its satellite darling - EchoStar.
On Tuesday, EchoStar released what it and analysts called disappointing third quarter results. The lackluster numbers included ARPU of roughly $51 (below most Wall Street estimates) and subscriber growth of 285,000 (also below Street estimates).
Once the numbers were out, and Charlie Ergen and Co. pondered the results via a conference call with analysts, Wall Street sent the DISH stock down nearly 13 percent.
Was it the delay in releasing new products, such as SuperDISH? Did the company cut back advertising and promotion? Did DirecTV (which beat DISH Network's subscriber gains for the first time since 1Q 2002) pick up the customers EchoStar couldn't because of NFL Sunday Ticket? These questions and more were floated by numerous analysts.
The Wall Street reaction was so intense that it lead one analyst - Doug Shapiro of Banc of America Securities - to place the DISH stock as one of its top picks, giving it a "Buy" rating and a 12-month price target of $43. "While overall results were light, notably net adds and ARPU, we were shocked at the severity of the sell off," he said.
So, the superhero of the satellite business can have a financial quarter or two that aren't so good. But before people begin to think things will start coming up roses for satellite TV, there are significant challenges ahead for the business (and this applies just as much to DirecTV and VOOM as EchoStar, and perhaps competitors like GlobeCast and others).
Satellite TV companies are poised to expand their slate of offerings, and that's going to increase SAC (subscriber acquisition costs).
DirecTV's $99 promotion for receivers covering up to three rooms, including a DVR, helped the satellite TV company's recent net subscriber additions. But it came at a cost: SG Cowen said there's a subsidy of up to $425 on the deal, which drove SAC to $590.
EchoStar's SAC for the third quarter was around $500, an improvement over the $537 reported during the same period last year. SG Cowen predicts EchoStar's SAC to gradually rise to $574 by 2007.
With additional hardware subsidies and subsidized professional installs for equipment that's going to be much more complex to place on roofs and in the living room, services are going to record higher SAC. And SAC is going to rise while companies deal with more intense competition from cable, and pressure to keep prices down for consumers while they deal with things such as rising programming costs.
This all doesn't mean EchoStar won't be the apple in a lot of analyst eyes. But it's not going to get any easier for DISH, which Ergen admitted "didn't execute as a company."
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