AT&T published a mixed set of Q1 2023 results, with revenue coming in at $30.14 billion and adjusted earnings standing at $0.60 per share. The core wireless business fared well, with AT&T adding a net of 424,000 postpaid phone subscribers over the quarter. However, the company's free cash flow was considerably weaker than expected, coming in at $1 billion. However, the company says that it expected to generate at least $16 billion in free cash flow for the full year.
Over the last year, AT&T has been spinning off its media, pay-TV, and advertising assets 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.
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.
For additional details, select a driver above or select a division from the interactive Trefis split for AT&T at the top of the page.
AT&T is a leading provider of telecommunications services. The company derives most of its revenues from its Communications business, which includes its wireless phone business and broadband. AT&T divested a majority of its pay-TV, media, and advertising assets between 2021 and 2022 in order to focus on its core wireless business.
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 2023, AT&T served over 190 million wireless subscribers, including wholesale and retail phones and connected devices.
Mobile data usage has skyrocketed in the last few years due to the increasing proliferation of smartphones and related applications and services. Carriers have also been tailoring their plans based on the monthly amount of data offered while typically offering free unlimited voice and text.
The U.S. wireless market is saturating, with the total number of wireless phone subscribers exceeding the U.S. population. It's likely that growth in the number of wireless phone connections - representing the most lucrative segment of the wireless market - will slow from now on. 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 and 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.