If there were ever a company that demonstrates the value of diversification in its product line, it has to be AT&T (NYSE:T). Not only is it selling the infrastructure on which streaming video runs, but it's also selling some of the content as well. It's got fingers in several other pies as well, and though some of these aren't doing quite as well as some might hope for, the end result for AT&T was better than many expected.
Matched Numbers Good Enough for Pre-Market Gains
Overall, AT&T had a solid quarter. The company posted earnings per share of $0.76, which was right in line with previous Wall Street estimates. Better yet, the company managed to post revenue totals that were above those expected by previously-established estimates; the company posted $42.3 billion in revenue while expectations called for $41.61 billion.
Generating that revenue was a mixed bag of properties that saw gains and losses alike as ground shifted underfoot. For instance, Warner Bros—an AT&T company—saw its revenue drop 28% as the company postponed theatrical releases of several new movies to later quarters thanks to the closure and/or restrictions connected to movie theaters of late. WarnerMedia also lost some ground, falling to $7.5 billion for the quarter and a 10% loss over previous quarters.
An Aggressive Response to Conditions
AT&T's home properties—particularly HBO and HBO Max—saw significant gains. In the US, the duo now counts around 38 million subscribers to its credit, rising to 57 million subscribers worldwide. Turner's third quarter saw some improvements as the NBA season managed to get at least somewhat restarted. Even with the gains in subscribers, HBO revenues were down 2% over the same time last year.
Yet AT&T's biggest business, communications, proved to help quite a bit on figures, even if there were some mixed results here as well. The company's mobility segment posted a gain of 1%, pushing the segment to $17.1 billion in revenue. Even as mobility gained, though, video subscriptions were down. The ongoing move away from basic cable and even satellite television in favor of streaming alternatives hurt AT&T somewhat, as the communications group dropped 3%, falling to $34.3 billion. There are also signs that AT&T is revamping its processes for upgrading phones, making the process less complicated and thus more likely to actually be used.
So far, AT&T has lost around four million video connections, with 590,000 jumping ship this quarter. AT&T Now, its streaming service, lost 37,000 subscribers this quarter as well.
Polarizing Analysts
The numbers were a mixed bag for AT&T, and so too is the analyst perspective, which has been oddly fluid for the last six months based on our latest research. While the company has been at a “hold” ranking that entire time, drifting within the field has been substantial.
For instance, six months ago, the company was at two “sell”, 14 “hold”, and 11 “buy” ratings. Now, six months later, it's at four “sell”, 10 “hold” and 13 “buy.” Even as the analysts are polarized, so too are their expectations for AT&T pricing, as the average price target on the company's shares has dropped nearly $3 over the last six months.
Fighting Hard Amid Less Than Ideal Conditions
Give AT&T credit, though; it's made a whole lot of changes in the last few weeks, some of which haven't been really well received. Plans are in the works for AT&T to sell off its Crunchyroll subsidiary, a streaming service that focuses wholly on anime, to Sony (NYSE:SNE), which would cement its anime supremacy since Sony already owns Funimation. It's part of a larger plan on AT&T's part to sell $10 billion in company-owned assets this year, and this has already cropped up in several places. The company has reached into its Time Warner products to shut down production of popular Cartoon Network series “The Venture Brothers”, while AT&T focuses harder on making HBO Max a direct competitor to Netflix (NASDAQ:NFLX), a move that, given the circumstances, could be a solid one.
The loss of theatrical movie trade for the foreseeable future will be hard to swallow, and given the politically-charged atmosphere in which the theater shutdowns exist, may not be improved any time soon. Yet if AT&T can be sole owner of the next Netflix, and populate it with Warner properties, the end result may be better for AT&T than some might expect. A bet on this company isn't likely to go too far awry.
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