Why Has AT&T’s Pay TV Business Been Underperforming Its Rivals?

by Trefis Team
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AT&T (NYSE:T) became the largest U.S. pay-TV operator in 2015, following its acquisition of DirecTV. However, the company’s pay TV operations have been struggling since then, losing over 2 million subscribers over the last two years. In this analysis, we take a look at how AT&T’s pay-TV operations have been trending and how they compare with key rivals. We also examine the impact of the pay TV operations on the company’s overall value.

View our interactive dashboard analysis How Does AT&T’s Pay-TV Business Stack Up Versus Other Players? 

AT&T’s Pay TV Subscriber Base Has Been Declining At A Rate Of ~5% A Year

  • AT&T’s pay TV subscriber base declined from 25.3 million subscribers at the end of 2016 to about 22.9 million in 2018.
  • The decline was largely due to the under-performance of the DirecTV operations.
  • We project that the user base will decline further by about 5% in 2019.

How Does AT&T’s Pay TV Subscriber Base Stack Up Versus Its Rivals?

  • While AT&T has lost about 2.4 million pay TV subscribers over the last two years (about 9% of its 2016 user base), rival Comcast lost just about 0.5 million (about 2%), while Charter lost about 0.6 million subscribers (about 4%).
  • While the broader U.S. pay TV market has been declining, driven by the increasing shift toward online video, AT&T is likely being impacted by its heavy reliance on the DirecTV satellite operations.
  • Satellite-based pay TV players likely have a lower mix of subscribers with bundled services (such as phone, broadband), compared to cable players, making them more likely to give up connections.
  • For instance, over 2018, satellite players lost about 7% of their subscribers vs. major cable players who lost less than 2%.

AT&T Has Lost More Subscribers Than Its Rivals In Recent Years

  • AT&T has lost ~1 million users over the last two years, underperforming its rivals.

How AT&T’s Pay TV Revenues Have Been Trending & How It Impacts Its Valuation

  • AT&T’s video revenues have declined from about $36 billion in 2016 to about $33 billion in 2018. We expect the metric to fall to about $32 billion by 2019.

Estimating AT&T’s Total Revenues

  • AT&T’s total revenues are expected to come in at about $183 billion this year.

Estimating AT&T’s Adjusted EPS

  • We expect AT&T’s adjusted EPS to stand at about $3.54 in 2019.

Arriving At AT&T’s Share Price Estimate Based On 2019 EPS

  • We are valuing AT&T at about 11 x projected 2019 earnings.

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