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DISH (NASDAQ:DISH) Reports Sales Below Analyst Estimates In Q3 Earnings


Full Report / March 15, 2024

Satellite TV and internet provider DISH (NASDAQ:DISH) missed analysts' expectations in Q3 FY2023, with revenue down 9.5% year on year to $3.70 billion. It made a non-GAAP loss of $0.26 per share, down from its profit of $0.65 per share in the same quarter last year.

DISH (DISH) Q3 FY2023 Highlights:

  • Revenue: $3.70 billion vs analyst estimates of $3.82 billion (3% miss)
  • EPS (non-GAAP): -$0.26 vs analyst estimates of $0.11 (-$0.37 miss)
  • Gross Margin (GAAP): 24.2%, down from 30.8% in the same quarter last year
  • Free Cash Flow was -$548.2 million compared to -$639.1 million in the previous quarter
  • Wireless Subscribers: 7.5 million
  • Market Capitalization: $3.08 billion

Serving millions of customers across the United States, DISH (NASDAQ:DISH) is a satellite television, internet, and cellular service provider offering a range of entertainment and connectivity solutions.

DISH was established as an alternative to traditional cable TV, and through its satellite-based television services, can offer a broader lineup of channels with better pricing options, appealing to consumers seeking diverse content such as sports, movies, and international programming. To extract more efficiency from its satellites, which are large upfront capital investments, DISH also provides high-speed internet services.

As part of its evolution, DISH (like many other cable and satellite companies) began offering cellular connectivity solutions to its customers under its wholly-owned subsidiary, DISH Wireless. This strategic shift occurred in 2020 when the company acquired Boost Mobile from T-Mobile to bolster its 5G capabilities. Because coverage is spotty given the nascency of its cellular offering, DISH has a roaming agreement with AT&T and T-Mobile that enables customers to use AT&T and T-Mobile's 4G LTE and 5G networks in areas where it does not provide service.

The company generates revenue through subscription fees for its TV, internet, and cellular services. These offerings can be bundled for discounts, and customers can choose from different package options based on their content (TV), speed (internet), and consumption (cellular) preferences.

Cable and Satellite

The massive physical footprints of fiber in the ground or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their traditional cable subscriptions in favor of streaming options. While that is a headwind, this affinity to streaming means more households need high-speed internet, and companies that successfully serve customers can enjoy high retention rates and pricing power since the options for internet connectivity in any geography is usually limited.

Competitors in the telecommunications industry include Comcast (NASDAQ:CMCSA), Charter Communications (NASDAQ:CHTR), and AT&T (NYSE:T).

Sales Growth

Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. DISH's annualized revenue growth rate of 2.5% over the last five years was weak for a consumer discretionary business. DISH Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. DISH's recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 6.8% over the last two years.

We can dig even further into the company's revenue dynamics by analyzing its number of wireless subscribers and television subscribers, which clocked in at 7.5 million and 8.84 million in the latest quarter. Over the last two years, DISH's wireless subscribers averaged 6.5% year-on-year declines while its television subscribers averaged 9% year-on-year declines. DISH Wireless Subscribers

This quarter, DISH missed Wall Street's estimates and reported a rather uninspiring 9.5% year-on-year revenue decline, generating $3.70 billion of revenue. Looking ahead, Wall Street expects revenue to decline 3.1% over the next 12 months.

Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

DISH was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a consumer discretionary business, producing an average operating margin of 9.9%. DISH Operating Margin (GAAP)

In Q3, DISH generated an operating profit margin of negative 1.1%, down 11.6 percentage points year on year.

EPS

We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. DISH EPS (Adjusted)

Over the last five years, DISH's EPS dropped 128%, translating into 17.9% annualized declines. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends or consumer preferences. Consumer discretionary companies are particularly exposed to this, leaving a low margin of safety around the company (making the stock susceptible to large downward swings).

In Q3, DISH reported EPS at negative $0.26, down from $0.65 in the same quarter a year ago. This print unfortunately missed analysts' estimates. Over the next 12 months, Wall Street expects DISH to perform poorly. Analysts are projecting its LTM EPS of $1.87 to shrink by 52.5% to $0.89.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, DISH's demanding reinvestments to stay relevant with consumers have drained company resources. Its free cash flow margin has been among the worst in the consumer discretionary sector, averaging negative 5.4%.

DISH Free Cash Flow Margin

DISH burned through $548.2 million of cash in Q3, equivalent to a negative 14.8% margin, reducing its cash burn by 365% year on year. Over the next year, analysts predict DISH will reach cash profitability. Their consensus estimates imply its LTM free cash flow margin of negative 9.8% will increase to positive 2.7%.

Key Takeaways from DISH's Q3 Results

We struggled to find many strong positives in these results. Its operating margin missed and its EPS fell short of Wall Street's estimates. Overall, the results could have been better. The stock is flat after reporting and currently trades at $5.73 per share.

Is Now The Time?

DISH may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of DISH, we'll be cheering from the sidelines. Its revenue growth has been weak over the last five years, and analysts expect growth to deteriorate from here. On top of that, its number of wireless subscribers has been disappointing, and its declining EPS over the last five years makes it hard to trust.

DISH's price-to-earnings ratio based on the next 12 months is 6.5x. While the price is reasonable and there are some things to like about DISH, we think there are better opportunities elsewhere in the market right now.

Wall Street analysts covering the company had a one-year price target of $12.80 per share right before these results (compared to the current share price of $5.73).

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