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AT&T Earnings: What Happened With T

Key points to remember

  • Adjusted EPS was $0.75 versus analysts’ expectation of $0.74.
  • Revenues also exceeded consensus estimates.
  • The number of postpaid wireless phone network additions was approximately 64% higher than estimated.
  • National subscribers to HBO Max and HBO hit more than 41 million two years ahead of the company’s forecast.

What happened

AT&T saw an increase in postpaid wireless phone network additions in the fourth quarter that far exceeded analysts’ expectations. The company reported around 800,000 additions for the quarter, around 64% higher than analysts’ expectations of over 487,000. Revenue and adjusted EPS also both beat analysts’ forecasts, although by much lower margins. Yet despite expectations beating expectations, both revenue and Adjusted EPS were down year-on-year. Additionally, the company said it reached 41 million subscribers to its HBO and HBO Max services about two years ahead of the schedule it had originally planned.

(Below is the original Earnings Snapshot from Investopedia, published January 26, 2021.)

What to look for

AT&T Inc. (J) has completely missed out on broader stock market progress over the past year as the company has been rocked by an array of negative forces. The company’s theatrical distribution business has been devastated by the COVID-19 pandemic as consumers stay home. And the general trend away from pay-TV services, including AT&T’s DirecTV business, has offset flat revenue from the company’s wireless and broadband businesses, which hurt profits and to income.

For these reasons, investors will be watching closely for any signs of improvement when AT&T releases its results for the fourth quarter of fiscal 2020 before the market opens on January 27.Analysts expect the company to post a significant year-over-year (YOY) decline in adjusted earnings per share (PES) and a decline in income.

Another key metric for investors to watch is the number of AT&T postpaid wireless phone network additions. This metric refers to the number of people who have signed up for continuous subscription wireless plans, a core component of AT&T’s wireless business. Analysts estimate that the number of postpaid wireless phone network additions in the fourth quarter of fiscal 2020 will more than double from the same period a year earlier.

AT&T shares struggled despite several strong quarters of postpaid wireless phone network additions. Since falling with the broader market at the start of 2020, AT&T stock has traded sideways for most of the past year, lagging considerably behind the broader stock market. AT&T stocks have provided a total return of -18.3% over the past 12 months, well below the S&P 500 total return of 18.9% over the same period. All figures are as of January 25, 2020.

Source: Trading View.

AT&T’s lackluster stock performance is illustrated by its earnings and revenue growth. AT&T has posted anemic growth or decline in adjusted EPS in recent quarters. Four of the past seven quarters have seen year-over-year declines in adjusted EPS, with the other three quarters showing only modest improvement of around 4% or less. Notably, AT&T experienced year-over-year declines in Adjusted EPS during the first three quarters of fiscal 2020. The 19.2% year-over-year decline in the latter period of the third quarter was the largest decline for at least four years. Analysts expect A&T to post another big decline of 16.9% in the fourth quarter of fiscal 2020.

AT&T’s quarterly revenue growth was also weak. Over the past four years, revenue grew year-over-year in just four quarters, from the third quarter of fiscal 2018 to the second quarter of fiscal 2019. The past five quarters all saw year-over-year declines of up to 8.9%. Analysts estimate that revenue will fall 4.9% year-on-year in the fourth quarter of fiscal 2020, double the pace of the same quarter a year earlier. The silver lining may be that this decline will be less than in the second and third quarters of fiscal 2020.

AT&T Key Metrics
Q4 FY 2020 (Estimated) Q4 2019 Q4 2018
Adjusted earnings per share ($) 0.74 0.89 0.86
Revenue ($B) 44.5 46.8 48.0
Postpaid additions to the wireless telephone network (thousands) 487.6 229.0 131.0

As mentioned above, a key measure of AT&T’s success is the number of additions to the postpaid wireless phone network. Due to the number of ongoing subscriptions added, rather than prepaid phones, this provides a predictable and ongoing revenue stream for the company and a significant part of its core wireless business. Additions to the postpaid wireless phone network are particularly crucial at a time when many of its other businesses are struggling. Perhaps most importantly, AT&T has faced declining revenue from its DirecTV service as customers shift to streaming subscriptions and other alternatives.

Additions of postpaid wireless phone networks were a beacon of hope for AT&T. The company’s net additions of postpaid wireless phones have generated dramatic growth over the past four years, growing from a 23.4% increase in fiscal 2016 to 149.0% in fiscal 2016. fiscal 2019. Net additions grew 538.6% in the third quarter of fiscal 2020, increasing more than seven times the pace of the same quarter a year earlier. Analysts expect growth of 112.9% in the fourth quarter of fiscal 2020 and 125.7% for the whole of fiscal 2020. Given the challenges facing its other businesses, AT&T will have to more than ever to sustain continued and rapid growth in the number of postpaid wireless subscribers.

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