AT&T’s report of second quarter earnings results led its CEO, John Stankey, to say, “We’re pleased with our performance and our momentum is strong.” Analysts Jonathan Chaplin, Philip Burnett and Vikash Harlalka at New Street Research said in a statement, “The change wrought by AT&T’s leadership in the second quarter was huge. Whatever one thought AT&T was worth before, it is unequivocally worth more now.” In contrast, analysts Craig Moffett, Clay Griffin, Jessica Moffett and Jay Li of MoffettNathanson said in a statement, “There can be no argument but that these results are relatively good. Yes, AT&T’s EBITDA is still shrinking, but all of their now-core communications businesses are operating well.”
Nevertheless, New Street Research and MoffettNathanson drew opposite conclusions about AT&T’s prospects, with New Street Research recommending that investors buy AT&T stock in anticipation of a rise in share price to $37, and MoffettNathanson recommending that investors sell the stock in anticipation of a fall in share price to $23. Shares in AT&T were trading at about $28 this morning.
According to Stankey, “For the fourth consecutive quarter, we saw good subscriber growth across wireless, fiber and HBO Max. Mobility delivered strong service revenue, EBITDA and postpaid phone growth. Our fiber business, which leads on customer satisfaction, grew subscribers and penetration. HBO Max had another strong quarter and is ahead of plan to be a leading direct-to-consumer streaming platform, with both subscriber- and ad-supported choices. As a result, we’re raising our global HBO Max year-end forecast to 70 million to 73 million subscribers. Also, we’re updating full-year guidance for consolidated revenue, wireless service revenue, adjusted EPS and free cash flow.”
The Mobility unit, which is AT&T’s wireless carrier business — officially known as AT&T Mobility — reported adding 789,000 postpaid subscribers and revenue increases of 5 percent for service and 31.9 percent for equipment. Operating income rose $6 billion, 3.4 percent more than the same quarter last year, with EBITDA up 2.7 percent.
According to Matthew Johnston of Investopedia, WarnerMedia accounted for about 20 percent of AT&T’s second-quarter revenue and rose 30.7 percent compared with the same quarter last year. If AT&T spins off WarnerMedia next year as planned, other parts of the business like postpaid phone subscriptions will become ever more critical for driving revenue, he said.
As happy as Stankey said he was with AT&T’s second-quarter results, analysts urge caution.
“We remain concerned about AT&T’s longer term prospects; with a product that is increasingly similar to T-Mobile’s, it is hard to see why AT&T should command a premium price,” the statement from New Street Research reads. “The increased focus and investment in wireless may improve AT&T’s prospects in several years, but in the interim, we continue to expect AT&T to struggle as T-Mobile and Cable rise.”
From MoffettNathanson: “In jettisoning their media and other non-core assets now, AT&T risks pivoting back to wireless at a time when this is as good as it gets. Competitive intensity in the wireless industry appears poised to get worse.”
Don Bishop is executive editor and associate publisher of AGL Magazine.