AT&T Earnings Delivered. Why Its Inventory Is Nonetheless Hated.

AT&T‘s third quarter of 2021 was objectively good however buyers who’ve been burned over time received’t be received again so simply. The telecom and media conglomerate’s inventory fell after the report on Thursday.

Even the analysts on Thursday morning’s earnings name, usually a supportive group—“nice quarter guys!”—didn’t mince phrases. “I feel everyone has been fairly impressed with the outcomes of AT&T over the past yr,” J.P. Morgan’s Phil Cusick advised AT&T CEO John Stankey. “I’d solely comply with up that the market is telling you that buyers don’t consider it.”

AT&T (ticker: T) stated Thursday that it earned 82 cents per share within the third quarter, forward of analysts’ common estimate of 64 cents and up from 39 cents within the year-ago interval. Adjusted for one-time prices and advantages, AT&T introduced in 87 cents per share, additionally forward of the Wall Avenue consensus of 78 cents and the 76 cents earned in the identical quarter a yr in the past.

AT&T’s third-quarter income was $39.9 billion, beneath the common forecast of $40.6 billion and down 5.7% from $42.3 billion a yr earlier. The third-quarter 2021 gross sales embrace a web $1.8 billion of revenues tied to DirecTV and the corporate’s video operations, which have been spun off in the course of the quarter in early August. Revenues have been up 4.7% when excluding that unit from the 2020 third quarter.

Excluding these separated TV operations, AT&T’s adjusted earnings earlier than curiosity, taxes, depreciation, and amortization, or Ebitda, have been $12.6 billion, slightly below the Wall Avenue consensus name however up 2.9% yr over yr. AT&T’s web revenue was $5.9 billion, versus the $4.5 billion common name amongst analysts. That was up 112% from the third quarter of 2020.

The place AT&T actually did nicely within the third quarter was on the wi-fi subscriber entrance, persevering with a current streak. The corporate stated it added a web 1.2 million postpaid subscribers, whereas the common name on Wall Avenue was for 688,000. AT&T has now added 4.4 million wi-fi postpaid subscribers over the previous 4 quarters.

Within the third quarter, 928,000 of these have been postpaid telephones, versus the consensus name of 560,000. AT&T additionally stated it added a web 249,000 pay as you go subscribers final quarter, in contrast with analysts’ common estimate of 162,500.

Verizon Communications (VZ) reported on Wednesday, and stated it added a web 699,000 postpaid subscribers together with 429,000 postpaid telephones. Each figures have been nicely forward of analysts’ numbers.

AT&T and its rivals have been lively with promotional efforts in current months, leading to these elevated postpaid subscriber additions. They’ve supplied subsidies of as much as $1,000 for brand new and current prospects shopping for a brand new


(AAPL) iPhone.

It was additionally doubtless a tough quarter for T-Cell US (TMUS), which handled the fallout from a wide-ranging hack of its buyer knowledge in August. T-Cell reviews on Nov. 2.

AT&T is within the strategy of spinning off its WarnerMedia subsidiary and merging it with Discovery (DISCA), a deal that’s set to shut by the center of subsequent yr. The remaining AT&T will resemble in the present day’s firm’s Communications phase.

That unit introduced in $28.2 billion in income final quarter, barely forward of consensus, and $11.2 billion in Ebitda, which fell simply quick. The phase’s enterprise wireline division was significantly weak within the quarter, offset by energy in client wi-fi.

Progress in fiber broadband is one other leg of AT&T’s new technique, with billions of {dollars} of capital funding deliberate to develop its community and win new prospects. Within the third quarter, web subscriber development was underwhelming: The corporate added a web 5,700 broadband prospects, versus the consensus of 52,000. That features a smaller-than-expected 289,000 fiber provides and a larger-than-expected lack of 261,000 DSL prospects.

HBO and WarnerMedia, as soon as a mainstay of AT&T’s earnings report, has turn into one thing of a sideshow for buyers as the corporate prepares to spin off its leisure belongings. Heading into that spinoff, although, WarnerMedia appears to be holdings its personal.

HBO Max launched in a number of worldwide markets within the quarter, and grew to 69.4 million subscribers globally by the top of September, about matching estimates. Administration has a year-end goal of as much as 73 million subscribers. The soon-to-be separated WarnerMedia phase introduced in $8.4 billion in income—a hair higher than estimates—and $2.2 billion in Ebitda, roughly according to forecasts.

“AT&T lays declare to essentially the most hated inventory and essentially the most maligned administration workforce in our universe,” wrote New Avenue analyst Jonathan Chaplin after the report on Thursday morning. “…We proceed to count on AT&T to wrestle as T-Cell and cable rise. That actually doesn’t appear to have occurred this quarter although, with exceptionally robust web provides in wi-fi; nevertheless, it’s unclear how a lot credit score buyers will give AT&T for the newfound resilience in its wi-fi enterprise, at the very least in gentle of all the pieces else.”

That “all the pieces else” features a coming dividend lower as a part of the WarnerMedia transaction. AT&T’s massive constituency of income-investor shareholders doesn’t like that.

And growth-oriented buyers who could possibly be all in favour of betting on Warner Bros. Discovery’s streaming future received’t be shopping for AT&T inventory in the present day, as a substitute ready for the spinoff to shut. Yield-focused buyers could possibly be keen sellers of their new leisure firm’s shares—which received’t initially pay a dividend—that means they could possibly be obtainable cheaper after the transaction, the pondering goes. There’s additionally appreciable skepticism about AT&T’s long-term steering for the remaining telecom firm. Wall Avenue analysts’ numbers are typically beneath administration’s targets.

CEO Stankey is aware of there’s a hole to shut with buyers: “We proceed to attempt to earn your confidence one quarter at a time, delivering working efficiency that reveals our momentum is actual and sustainable,” he stated on Thursday morning’s name. That’s a tall activity, even for an organization with a inventory buying and selling at simply 8 occasions ahead earnings and nonetheless yielding 8% in dividends yearly.

AT&T inventory gave up an early achieve on Thursday to fall 0.7%. It had misplaced about 3% after dividends in 2021 via Wednesday’s shut, versus a 22% return for the

S&P 500.

Verizon inventory has misplaced 5% after dividends this yr and T-Cell inventory is down 10%.

Joe Woelfel contributed reporting.

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