After 2 Years Of Healthy Growth, Is AT&T’s Revenue Growth Rate Set To Fall Sharply In 2020?

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AT&T Inc. (NYSE: T) met market expectations when it reported its 2019 results recently. Despite healthy revenue growth in 2018 and 2019, the company’s revenue is expected to rise at a very marginal rate in 2020, mainly due to the high base achieved in 2019 on account of the Time Warner acquisition. HBO Max, which is expected to be launched in May 2020, is unlikely to have any significant impact on the company during this year, with total revenue growth expected to fall from 6.4% and 6.1% in 2018 and 2019, respectively, to 0.4% in 2020, as the acquisition benefits have already been accounted for.

Takeaway

  • AT&T reported revenue of $181.2 billion in 2019, which marked an increase of 6.1% over 2018.
  • The rise was led by an increase in revenues from a full year of Time Warner (which includes lower Warner Bros. theatrical revenues in the second half of 2019) and growth in domestic wireless services, strategic and managed services, and IP broadband revenues, partially offset by declines in revenues from legacy wireline services and video.
  • Over the last two years, AT&T has added $20.7 billion to its revenue base, which increased from $160.5 billion in 2017 to $181.2 billion in 2019, marking a growth of 12.9% over two years.
  • Healthy revenue growth has led to an almost 27% surge in AT&T’s stock price in the last one year. We discuss AT&T Valuation analysis in full separately.
  • Our dashboard AT&T Revenues: How Does AT&T Make Money? discusses 2020 and 2021 revenue expectations along with past performance for AT&T’s total revenue and all operating divisions.

AT&T’s Business Overview

a) What Does It Offer?

  • Communications: This segment includes Mobility which provides wireless service and equipment, and Entertainment and Business Wireless which provides video, internet, and voice communications services to residential customers and business customers, respectively.
  • Warner Media: It develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats.
  • Latin America Segment: It provides Pay TV services in Latin America and wireless service and equipment in Mexico.
  • Xandr: It provides advertising services.

b) Competition?

  • Wireless Carriers: Verizon Wireless, Sprint and T-Mobile, and regional carriers such as U.S. Cellular and C-Spire.
  • Video/ Broadband: América Móvil and Telefónica.
  • Legacy Voice and Data: Orange Business Services, BT, Singapore Telecommunications Limited, and Verizon Communications Inc.
  • Media: Disney, Viacom, CBS, Netflix, Comcast, Apple, Amazon.

Segment-wise Revenue Performance

A] Communications

  • Communications revenues have declined by 5.7% over the last two years –from $150.4 billion in 2017 to $141.9 billion in 2019. We expect this trend to continue in the next two years as well, as segment revenue is likely to go down to $138 billion by 2021 due to declining revenues from Entertainment segment, Business Wireline, and Postpaid subscriptions.
  • Declines in Entertainment and Business Wireline segments over the years were driven by continued declines in legacy voice and data products, shifts to over-the-top (OTT) video offerings, and change to unlimited wireless plans and lower wireless handset sales and upgrades.
  • Postpaid revenues declined due to falling average revenue per user (ARPU).
  • We expect this trend to continue driven by lower price plans and promotional activities.

B] Warner Media

  • Segment revenue increased from $18.9 billion in 2018 to $33.5 billion in 2019, as Time Warner acquisition in 2018 led to sharp growth in segment revenue in 2019, though foregone content licensing revenue in preparation for HBO Max launch impacted revenues to a certain extent.
  • Turner revenues were up 1.6% with subscription revenue gains, while Home Box Office revenues were up 1.9% with gains in digital subscribers in 2019.
  • Going forward, Warner Media revenue is expected to grow at a slower rate to reach about $38.4 billion by 2021, with large part of the segment revenue growth coming from the launch of HBO Max in May 2020.

C] Latin America

  • Latin America has been a drag on the company’s top line, with segment revenue decreasing from $8.3 billion in 2017 to $7.0 billion in 2019.
  • We expect revenue to continue to decline, albeit at a slower pace, to $6.8 billion by 2021, led by continuous subscriber disconnections, along with foreign currency headwinds.

D] Xandr

Also, to understand how AT&T’s revenue trend over recent years stands in comparison to major peers such as Disney and Verizon, view our dashboard on AT&T Revenues.

 

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