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The largest U.S. satellite TV operator DIRECTV (DTV - Analyst Report) recently announced solid subscriber addition of nearly 100,000 in the final quarter of fiscal 2012.

Despite generating highest subscriber growth for fiscal 2012, DIRECTV’s U.S. segment reported 20% fall in subscriber growth in the fourth quarter of 2012 as compared with last year's quarter but increased 49% as compared with the fourth quarter of 2011, hence taking its tally to a total 20.081 million subscribers, up 1% on an annualized basis.

Despite generating highest subscriber growth for the fourth quarter of fiscal 2012, DIRECTV’s U.S. segment reported 20% fall in subscriber growth in the reported quarter as compared with the same quarter the year before. However, it increased 49% as compared with the fourth quarter of 2011, hence taking its tally to a total 20.081 million subscribers, up 1% on an annualized basis.

We believe that such massive improvement in subscriber growth is mainly attributable to settlement of service renewal fees with Viacom, and will restore faith of the customers. Moreover, launch of new DVR devices and other value added services may have prompted demand for DIRECTV.

During fiscal 2012, DIRECTV added 196,000 customers as compared with 661900 customers in fiscal 2011.

Dispute with Viacom, Inc. (VIAB - Analyst Report) coupled with slowdown in promotional activities due to increasing cost is seen to have reduced customer growth for the U.S. segment in 2012. Moreover, a saturated U.S. market and stiff competition from other pay-TV and online video streaming companies like Netflix, Inc. (NFLX - Analyst Report) and Hulu has continuously hurt subscriber growth for the company going forward.

However, DIRECTV’s Latin American segment has continuously posted record subscriber growth mainly driven by lower penetration of the pay-TV market in the region.

Consequently, the rise in renewal fees by nearly 20% may jack up programming expenses of DIRECTV, thereby affecting margins going forward. In order to mitigate such expenses the company has decided to hike rates by 8% from February 7 onwards.

We believe that such increase in rates from next month may impact customer growth for DIRECTV in the first quarter of fiscal 2013.

We are maintaining our long-term Neutral recommendation on DIRECTV. Currently, the stock holds a Zacks Rank #3, implying a short-term Hold rating.

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