AT&T Earnings: What to Look For From T

AT&T Inc. (T) has completely missed the broader stock market’s advance in the past year as the company has been buffeted by an array of negative forces. The company’s theatrical distribution business has been devastated by the COVID-19 pandemic as consumers stay at home. And the broad trend away from pay-TV services, including AT&T’s DirecTV business, has offset stable revenue in the company’s wireless and broadband businesses, hurting earnings and revenue.

For these reasons, investors will look closely for any signs of improvement when AT&T reports earnings for Q4 FY 2020 before market open on January 27th. Analysts predict that the company will report a significant year-over-year (YOY) decline in adjusted earnings per share (EPS) and a decline in revenue.

Another key metric for investors to watch is AT&T’s number of post-paid wireless phone net additions. This metric refers to the number of people who signed up for continual subscription wireless plans, a core component of AT&T’s wireless business. Analysts estimate that the number of post-paid wireless phone net additions in Q4 FY 2020 will more than double compared to the same period a year earlier.

AT&T shares have struggled despite multiple strong quarters of post-paid wireless phone net additions. Since plummeting along with the broader market in early 2020, AT&T stock has traded sideways for most of the past year, badly lagging the broader stock market. AT&T shares have provided a total return of -18.3% over the past 12 months, far below the S&P 500’s total return of 18.9% over the same period. All numbers are as of January 25, 2020.

The lackluster performance of AT&T shares is illustrated by its earnings and revenue growth. AT&T has posted anemic growth or falling adjusted EPS in recent quarters. Four out of the past seven quarters have seen YOY declines in adjusted EPS, with the other three quarters showing only modest improvement of about 4% or less. Notably, AT&T posted YOY declines in adjusted EPS in the first three quarters of FY 2020. The YOY drop of 19.2% in the most recent Q3 period was the sharpest decline in at least four years. Analysts expect A&T to post another major decline of 16.9% in Q4 FY 2020.

AT&T’s quarterly revenue growth also has been weak. In the past four years, revenue has increased YOY in only four quarters, from Q3 FY 2018 through Q2 FY 2019. The five most recent quarters have all seen YOY declines of as much as 8.9%. Analysts estimate revenue will drop 4.9% YOY in Q4 FY 2020, double the pace of the same quarter a year earlier. The silver lining may be that this decline will be less than than Q2 and Q3 of FY 2020.

As mentioned above, a key measure of AT&T’s success is the number of post-paid wireless phone net additions. As a reflection of the number of added continual subscriptions, rather than prepaid phones, this provides a predictable, continuous revenue stream for the company and an important part of its core wireless business. Post-paid wireless phone net additions are especially crucial at a time when several of its other businesses are under stress. Perhaps most important, AT&T has faced declining revenues in its DirecTV service as customers are moving to streaming subscriptions and other alternatives.

Post-paid wireless phone net additions have been a bright spot for AT&T. The company’s post-paid wireless phone net additions have generated dramatic growth in the past four years, accelerating from a 23.4% increase in FY 2016 to 149.0% in FY 2019. Net additions rose by 538.6% in Q3 FY 2020, growing at more than seven times the pace of the same quarter a year earlier. Analyst expect growth of 112.9% in Q4 FY 2020 and 125.7% for all of FY 2020. Given the challenges facing its other businesses, AT&T will need more than ever to maintain continued, rapid growth in post-paid wireless subscribers.

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