Sling TV may be Dish Network’s only bright spot, analyst says

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Falling subscriber numbers in Dish Network’s core satellite-based pay-TV business can’t be offset by a successful third quarter for Sling TV, the operator’s linear OTT alternative, according to research firm MoffettNathanson.

Dish Network included Sling TV metrics in its overall pay-TV numbers for its third quarter earnings report, but the research firm estimated where the operator gained and lost subscribers.

While Sling TV added about 517,000 new subscribers over the past four quarters, including 204,000 in Q3 alone, the research firm estimated, bringing its total possibly to 911,000. Dish Network lost 949,000 pay-TV subscribers over the past year – and 320,000 of those in the third quarter of 2016 alone.

The problem, argued Craig Moffett, Cathy Yao and Jessica Moffett, is that ARPU for Sling TV subscribers is much lower than ARPU for satellite subs. The “average lifetime value of a Sling subscriber sits just shy of $300, compared to north of $1300 for a traditional satellite subscriber,” the analysts estimated in a note to investors on Wednesday.

The analyst view was fairly pessimistic amid a quarterly report that saw overall ARPU up 3.6 percent year over year, from $86.33 in last year's Q3 to $89.44 this year. Dish reported total revenue of $3.75 billion for the quarter ending Sept. 30, up from $3.73 billion a year previously.

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Total subscribers, including satellite and Sling TV subs, came to 13.64 million, down from 13.91 million a year previously.

While Dish Network’s principal metrics are somewhat obscured by the inclusion of Sling numbers, “the general picture is one of a business that is struggling badly,” MoffettNathanson analysts said, explaining that the rosy financials are masking “the erosion of consumer lifetime value.”

Another factor coming into play for Sling TV is the launch of DirecTV Now, AT&T’s new linear OTT service, which competes directly with Dish Network’s game-changing OTT service. That could threaten the potentially “sole glimmer of hope” for growth in core business for Dish.

However, things aren’t totally bleak: much of Dish Network’s future success, and overall value, could be bolstered if cable operators and telcos fail to take advantage of the opportunity to steal video market share from Dish, the analysts said.

Despite that possibility, MoffettNathanson rated Dish stock a “sell” with a target price of $40, and maintained its 2016 earnings per share estimate of $3.28.

Dish Network shares were trading higher on the Nasdaq at around $57.31, up 62 cents, or 1.10 percent in mid-morning trading.

Updated Nov. 9 to reflect adjusted subscriber estimates from 1.08 million to 911,000.