AT&T Earnings Preview: Rising “Next” Adoption, U-verse Subscriber Adds To Drive Top Line

+5.74%
Upside
17.30
Market
18.29
Trefis
T: AT&T logo
T
AT&T

AT&T (NYSE:T) is scheduled to announce its Q1 2015 results on Wednesday, April 22nd. The wireless major had provided some insights about its expectations for the first quarter last month. Reiterating its earlier guidance of improving postpaid subscriber adds and expanding margins in the full year, the company had stated that it expected net postpaid subscriber adds to be in the 400,000 range in the first quarter, driven by growth in tablet adds. It also stated that postpaid churn was likely to improve both sequentially as well as year-over-year (y-o-y) in Q1 2015, highlighting the fact that the company had finally achieved some success in fending off competition from rivals. AT&T’s postpaid churn has increased drastically over the last couple of quarters, from 0.86% in Q2 2014 to 1.22% in Q4 2014, due to aggressive promotions from smaller rivals Sprint (NYSE:S) and T-Mobile in the latter half of last year.

In the previous quarter, AT&T’s overall revenues grew by about 4% y-o-y to about $34.4 billion, which was above the Thomson Reuters-compiled analyst consensus of $34.27 billion. The moderate revenue growth was attributed to the transition to no-subsidy plans, which shift revenue recognition from service to equipment (handsets), and a higher proportion of bring-your-own-device (BYOD) gross adds. The country’s second largest wireless carrier added 854,000 postpaid subscribers and about 1.3 million connected devices during Q4 2014, more than double the figure from a year ago. The carrier’s strategy to combat the innovative initiatives of rivals with equipment financing plans of its own worked well, as “Next” accounted for about 58% of its postpaid smartphone gross adds and upgrades in Q4. For the quarter ended March 31 2015, AT&T expects about 60% of its postpaid subscriber base to be on the no-device-subsidy plans, up from 58% at the end of Q4 2014 and about 30% at the end of Q1 2014.

AT&T recently also announced that it will now have three reportable business segments – Wireless, Wireline and International, with International representing its acquisition of Mexican wireless player Iusacell in November last year. (AT&T In Competition With America Movil In Mexico With Iusacell Acquisition) It also stated that it is likely to incur a charge of about $130 million in the quarter to pay around 3,000 retirees who elected to retire as part of a special offer.

Relevant Articles
  1. Down 50% From 2021, We Think There’s Upside For AT&T Stock
  2. Will AT&T Stock See Gains Post Q2 Results?
  3. At $15, AT&T Stock Appears Oversold
  4. AT&T Stock Held Up In A Tough Market. What Does 2023 Hold?
  5. What’s Happening With AT&T Stock?
  6. AT&T Falls 9% In A Month. Will It Recover?

We have a $36 price estimate for AT&T, which is about 15% ahead of the current market price.

See our complete analysis for AT&T here

Mobile Share Accounts And “Next” Plan Adoption To Continue Uptrend

The number of AT&T’s Mobile Share accounts more than doubled y-o-y in 2014 to reach 18.4 million, representing over 52 million connections or about 70% of its total postpaid base. The take rates of its higher-data tiers were especially impressive, as penetration of 10GB+ data plans increased significantly, from 27% of its Mobile Share base at the end of 2013 to over 50% by the end of 2014. By discounting higher data usage, AT&T is counting on subscribers adding more mobile devices to their shared data plans and shifting to the higher data tiers. Growing LTE adoption is also helping drive the trend.

Owing to the growing adoption of AT&T’s no-subsidy “Next” plans, the carrier reported a 72.3% increase in device revenues in the fourth quarter, even as service revenues declined 3.7% y-o-y. It will be interesting to see how the carrier performs in further improving “Next” adoption and device revenues. AT&T’s overall wireless operating revenues grew about 6% y-o-y to $74 billion in 2014.

First Quarter Wireline Trends

In the wireline business, AT&T expects its U-verse consumer revenue and strategic business revenue to continue to grow in double digits in the first quarter. However, margins are likely to be under pressure owing to the sale of its Connecticut wireline properties, higher costs for TV content and non-cash benefit expenses. The company recently stated that margins are likely to improve going forward with steady top-line growth and additional cost savings.

In Q4 2014, U-verse TV reported an increase of 73,000 subscribers after adjusting for the sale of the Connecticut operations. Overall, U-verse, AT&T’s fiber-optic based triple-play communications service had a solid 2014, with overall revenues (after adjusting for Connecticut sale) increasing by about 22% y-o-y on the back of solid growth in TV, Internet and Broadband revenues.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research