DISH Network's Core Business Strengthens, but What Comes Next?

On Tuesday, DISH Network became the second pay-TV operator in as many weeks to show that losing subscribers to the Internet streamers is not a fixed trend. The satellite television business posted earnings that handily beat estimates on both the top and bottom lines as profit swung out of the red and well into the black. Of course, the DISH Network story is not one solely about satellite TV, but about Chairman Charlie Ergen's quest to make the company into a telecom giant. After spending billions in spectrum acquisitions and chasing various M&A opportunities, investors are left wondering where things stand. Is DISH on the path to greater things?

Earnings recap
The majority of cable providers are bleeding customers as a result of high prices and content blackout issues. Just this fall, Time Warner Cable lost more than 300,000 subscribers over the course of one month due to its spat with CBS.

Satellite TV is a different story. DISH and its chief competitor, DIRECTV , tacked on positive net subscriber additions in the most recently ended quarter, with the former putting on 35,000 net new customers to its pay-TV offerings. The number is paltry compared to DIRECTV's tremendous Latin American-fueled growth, but it was well above Wall Street's estimates, which had DISH losing nearly 40,000 subscribers.

The new user numbers in both video and broadband services helped drive revenue up 2% to $3.6 billion -- about $20 million ahead of analyst estimates. On a subscriber level, ARPU rose to $81.05 from $76.99. The gain, while encouraging, actually wasn't enough to compensate for the increased costs.

On the bottom line, the company posted a net gain of $315 million, or $0.68 per share. In the year-ago quarter, the company had posted a hefty loss due to a one-time charge of more than $400 million.

The company's core business is performing better than expectations across the board, which should assuage investors who were worried the company was falling too far behind its rival in the quest for market share. Still, DISH's future appears to hinge largely on its wireless network ambitions.

Searching for love
Led by the vision of Ergen, DISH has jumped through hoop after hoop to position itself for an entrance into the wireless broadband market. The company has acquired billions worth of spectrum, gained FCC approval to launch a wireless network, and courted partners from Sprint to T-Mobile to Clearwire. While progress has stalled in recent months, there remains plenty of opportunity in the long term for Ergen and DISH to leverage its increasingly relevant position in the telecom landscape.

On the other end, the company could also benefit from teaming up with its much larger rival -- DIRECTV. By creating one behemoth of a pay-TV provider (DIRECTV is already the largest in the world), the two companies could save on costs, relax the market-share grab, and hold pricing power over broadcasters and other content owners -- putting an even greater pressure on cable businesses to adapt or perish.

DISH's stock price is a forward-looking one -- investors in the stock are seemingly confident in the ability of management to work out a deal that would put the company on a new playing field. DIRECTV may be the easier bet, however, given that it has focused on its core business and has increased cash flow and earnings every step of the way. Overall, DISH offers an exciting yet uncertain future, while its competitor offers the fundamentals sought by risk-averse investors.

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