Think consumers are reining in entertainment spending now that times are tough? Think again.
DirecTV (Nasdaq: DTV) gained 460,000 net new subscribers in its latest quarter, on 7 percent year-over-year revenue growth. Consumers must be scaling back on other expenses, while signing up for TV programming packages. Earnings per share fell 38 percent due to heavy investment in promotional offers to recruit new customers – but that should pay off in time.
The same story is playing out elsewhere. Comcast lost 2 percent of its standard cable customers since last year, but more than made up for that with 8 percent growth in its digital cable customer base. Verizon’s FiOS service, the newest, smallest and most high-tech kid on the block, is growing by leaps and bounds.
Throw in healthy growth for video rental expert Netflix (a Motley Fool Stock Advisor pick), and it looks like many Americans are trying to beat the blues with a heavy dose of mindless entertainment. (We’ll see whether these gains will be sustainable when the good times start to roll again. By then, many customers may stick around simply because they enjoy the service.)
Investors can take heart that those who sign up for on-demand services, triple-play package deals, high-definition programming and other fancy extras tend to stay around longer, and that’s where the growth happens to be these days.
Ask the Fool
Q: Is it good to see a lot of cash on a company’s balance sheet? – N.B., Dalton, Ga.
A: It depends. Firms with gobs of cash can act quickly when opportunities arise. But many successful companies purposefully maintain cash balances near zero. They use their money to buy back shares (essentially retiring them) and acquire other companies, among other things. If they suddenly need some cash, they draw on lines of credit.
You might be surprised at just how much cash some companies have in their coffers. As of December 2008, for example, General Electric had more than $48 billion in cash and cash equivalents. Around the same time, ExxonMobil, Wal-Mart, McDonald’s and Home Depot had around $30 billion, $7 billion, $2 billion and $500 million, respectively. Different companies manage their cash in different ways, with varying degrees of success.
Q: I’m saving to buy my first home within three years. How should I invest the money in order to get the maximum return? – D.C., Muskegon, Mich.
A: Well, the stock market is often best for long-term investment appreciation, but it should be off-limits. In the short run, the stock market can go up – or down, as 2008 reminded us. In the long run, it has averaged about 10 percent per year, but even that’s an average, not a guarantee.
Don’t risk money you’ll need within three to five (or even seven) years in stocks, or you may end up able to afford only a corrugated aluminum shack. Short-term scratch should be kept in a safe place, such as CDs or money market funds, to protect your principal. Learn more about short-term savings at www.fool.com/savings and www.bankrate.com.
My smartest investment
After losing money on investments made on my broker’s advice, I started using Value Line. In December 1974, Value Line predicted earnings of $2 in 1975 for an aircraft company. The company faced some challenges, but I bought 200 shares at $3.50 for $700. The company earned $1.29 instead of $2, but the stock doubled. I held on another year, and it doubled again. I sold in 1978 for $15.33 per share (and should have hung on longer). – R. Weber, Lancaster, Pa.
The Fool Responds: Companies facing challenges have often been beaten down and can turn out to be great or regrettable buys. You were smart to do your own homework, examining the company’s financial performance and gathering other data via Value Line. These days there’s much more information available about companies – on financial Web sites such as Yahoo! Finance, Google Finance, AOL Money & Finance and at Fool.com, too, as well as online discussion boards, companies’ own Web sites and elsewhere. It’s important to do your own homework when investing, and that’s gotten a lot easier.
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.