VALUATION HIGHLIGHTS

1. Communication constitutes 99% of the Trefis price estimate for AT&T's stock.

WHAT HAS CHANGED?

Latest Earnings Update (Q2 2022)

AT&T published a better than expected set of Q2 2022 results, with revenue coming in at $29.6 billion and adjusted EPS standing at $0.65. Although both numbers fell year-over-year due to the company's divestment of its U.S. Video and Vrio businesses, the core wireless business fared well. AT&T added a net of 813,000 postpaid phone subscribers over the quarter, its best Q2 performance in about a decade. However, the company cut its free cash flow outlook for the year to $14 billion, down from a prior outlook of $16 billion.

AT&T turns its attention back to wireless

Over the last year or so, AT&T has been spinning off its media, pay-TV, and advertising assets in order to focus on its core wireless business. It spun off its U.S. Video business in the third quarter of 2021 via a deal with buyout firm TPG Capital. In the fourth quarter of 2021, the company divested its Vrio Latin American pay-TV operations while entering into a deal to sell its Xandr advertising business to Microsoft. Moreover, in April 2022, the company closed a deal with Discovery to spin off its Warner Media business.

AT&T's 5G rollout

AT&T launched its 5G services in late 2018 and has been steadily expanding coverage. The carrier is also investing more in the mid-band spectrum, which offers fast speeds and wide coverage. In the FCC's latest auction, AT&T spent $9.1 billion on the mid-band spectrum.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of AT&T's value that present opportunities for upside or downside to the current Trefis price estimate for AT&T.

• Mobility Revenues: AT&T's mobility business remains one of its most valuable segments, accounting for a bulk of the value of its communications business. Mobility revenues have risen from around $71 billion in 2017 to $78 billion in 2021, driven by a rising postpaid wireless subscriber base and higher equipment-related revenues. We expect Mobility Revenues to grow to over $90 billion by the end of our review period. However, if the metric increases to about $100 billion by the end of our review period, it could increase our price estimate by over 10%.

For additional details, select a driver above or a division from the interactive Trefis split for AT&T at the top of the page.

BUSINESS SUMMARY

AT&T is a leading provider of telecommunications services. The company derives the bulk of its revenues from its Communications business, which includes its wireless phone business and broadband. AT&T divested most of its pay-TV, media, and advertising assets between 2021 and 2022.

SOURCES OF VALUE

AT&T's Communications services units account for a majority of AT&T's value given the company's large share of the U.S. wireless phone market. As of March 2022, AT&T served over 190 million wireless subscribers, including wholesale and retail phones and connected devices.

KEY TRENDS

Carriers have essentially become mobile data providers

Mobile data usage has skyrocketed in the last few years due to the increasing proliferation of smartphones and related applications and services. According to Cisco, North American mobile traffic per user will reach over 8 GB per month by the year 2021, up from roughly 1.8 GB per month in 2015, translating into a CAGR of 37%. Voice usage, on the other hand, is trending lower. Carriers have also been tailoring their plans based on the monthly amount of data offered while typically offering free unlimited voice and text.

Saturating wireless market

The U.S. wireless market is saturating, with the total number of wireless connections standing at over 355 million and the number of wireless phone subscribers standing at over 315 million, roughly in line with the U.S. population of 319 million. It's likely that growth in the number of wireless phone connections - which represents the most lucrative segment of the wireless market - will slow significantly going forward. Carriers are likely to focus on retaining existing customers and winning over porting customers while driving an incremental upside from areas such as connected devices and tablets, M2M connections, and wholesale services to drive growth in service revenues. AT&T, for its part, has been focusing on postpaid smartphone customers as well as prepaid customers while reducing its emphasis on postpaid feature phone users, who often have ARPUs lower than its prepaid ARPU. The carrier is also the largest player in the M2M and connected auto space in the U.S.