Dish Network (DISH) recently held talks with Amazon (AMZN), according to media reports. While the exact details of what Dish talked about with Amazon aren’t clear, Dish needs friends with deep pockets like Amazon to achieve its aims and overcome its shortage. Therefore, the Amazon talks should come as good news for Dish investors.
Dish’s legacy business has weakened
Dish’s legacy satellite television business isn’t in great shape. The business has continued to lose customers amid cord-cutting. Although Dish added 148,000 net subscribers in the third quarter, the credit for those adds goes to its Internet television service, Sling TV. The service added 214,000 subscribers in the third quarter, offsetting Dish’s 66,000-subscriber loss in its legacy satellite television business.
Selling satellite television subscriptions remains Dish’s biggest business. Therefore, weakness there weighs heavily on the company’s financial results. For instance, although Dish’s $3.17 billion revenue in the third quarter beat analysts’ estimate, it fell 6.7% YoY (year-over-year). Likewise, while Dish’s EPS of $0.66 beat analysts’ $0.60 forecast, they fell YoY from $0.82.
Amazon could help save Dish
As Dish has decided it should stop putting all of its eggs in one basket, it wants to diversify its business outside the pay-TV market and enter the wireless phone service market. To jumpstart that entry, Dish has agreed to purchase wireless assets that T-Mobile (TMUS) and Sprint have divested. It needs $5.0 billion to purchase those assets, and another $10 billion to set up its 5G wireless network. And it has strict deadlines to beat in the wireless network buildout, as we’ve discussed previously.
Therefore, Dish needs at least $15 billion for its wireless venture. However, it finished the third quarter with a cash reserve of about $1.6 billion.
Although the company hopes to raise about $1.0 billion in cash through a rights offering, its wireless project would still be left with a huge funding gap. That’s where Amazon could be helpful.
First, Amazon has a bigger war chest. It finished the third quarter with $24 billion in cash. Second, Amazon has signaled it would be interested in getting into wireless—it showed interest in the divested T-Mobile–Sprint wireless assets that Dish agreed to purchase. Moreover, two years ago, Amazon and Dish explored a wireless partnership.
Therefore, Amazon could be a strategic partner for Dish’s wireless venture. This year, Dish stock has risen 45%, and Amazon has risen 16%.