Key Takeaways From AT&T’s Q4 Earnings

by Trefis Team
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AT&T (NYSE:T), the second largest wireless carrier and largest pay TV operator in the United States, published its Q4 2016 results on Wednesday, meeting market expectations on earnings, although revenues missed estimates amid a continued loss of postpaid phone customers and pay TV subscribers. Below, we take a look at some of the key takeaways from the carrier’s earnings release.

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We have a $44 price estimate for AT&T, which is about 10% ahead of the current market price.

Promos Help Mitigate Effects Of 2G Shutdown And Feature Phone Losses

AT&T’s wireless revenues trended slightly lower, on account of the carrier’s recent postpaid phone subscriber losses (base is down 1.8% year over year) and lower equipment revenues, stemming from fewer handset upgrades and an increase in the number of subscribers who bring their own device. Although the carrier continued to lose postpaid phone subscribers (67k losses), amid feature phone attrition, the losses declined by close to 74% year-over-year, driven by promotions including buy-one-get-one free on smartphones over the holiday quarter. Moreover, the carrier noted that adjusting for the forced attrition caused by its 2G network shutdown in December, its postpaid phone base would have remained essentially flat. Churn figures also continued to trend positively, with postpaid phone churn coming in at a fourth quarter low of 0.98%, driven in part by an increasing number of wireless and video bundles, which help to improve customer loyalty.


DirecTV Now Posts Solid Adds, Cannibalization Appears Minimal

AT&T’s Entertainment division had an interesting quarter. The firm continued to transition its pay TV base towards its DirecTV product, which has lower content costs compared to its U-Verse IPTV offering (235k DTV adds and 262k U-Verse losses). AT&T also launched its first over-the-top (OTT) streaming TV service, DirecTV Now in late November, adding over 200k paid subscriber for the service over the first month, driven partly by promotional pricing and launch offers. Notably, cannibalization of the carrier’s high-value linear TV subscribers appears to have been minimal, with linear TV losses for the quarter coming in at 27k, below the average of about 37k losses over the last six quarters. This could be partly due to the different demographics that the products cater to. For instance, AT&T says that early DirecTV Now subscribers tend to be younger and more urban compared to its linear TV base and tend to live in apartments.

2017 Outlook 

AT&T expects consolidated revenue growth for 2017 to come in the low-single digits, driven by its IP services and video offerings. This is in contrast with its key rival, Verizon, which guided for no growth this year. Adjusted Operating margins are also expected to improve, driven by the carrier’s Mexican wireless operations and momentum in the North American wireless space, with adjusted EPS growth projected the mid-single digit range. The company has guided capital expenditures in the $22 billion range, roughly in line with last year.

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