AT&T Investors Need More Reassurance Despite Media Spinoff

David Wainer

27 Jan 2022, 06:22 AM IST

(Bloomberg Opinion) -- Investors were so bearish on AT&T Inc.’s stock over the past year that decent earnings results might be enough to reassure the market that the worst is over. But the company will need more than a one-time jump in mobile subscribers if it hopes to sustain investor optimism this year.

Thanks to a price war it started last year to win over customers from rivals Verizon Communications Inc. and T-Mobile US Inc., the company added 1.3 million wireless customers in the final quarter of 2021, bringing its full-year total to 4.5 million, the fastest growth in 10 years.

The growth is expected to slow this year. The company on Wednesday predicted a low-single-digit revenue increase for 2022, with wireless service revenue growing by about 3%. It projected adjusted earnings of $3.10 to $3.15 a share, broadly in line with analysts’ expectations of $3.13 a share.

But fourth-quarter adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, was $11.3 billion, below the median projection of analysts surveyed by Bloomberg of $12.5 billion.

AT&T’s shares shed 15% last year, but they have crept back up since the start of the year, adding 7.6% ahead of today’s earnings announcement even as the broader stock market has retreated. The stock was down about 3% in early trading Wednesday.

With investors showing more appetite for value stocks, the company is hoping to reap the rewards of Chief Executive Officer John Stankey’s decision to spin off the company’s media and entertainment businesses to focus on telecommunications. AT&T executives told analysts during the earnings call today that the company was confident the WarnerMedia merger with Discovery Inc. was moving swiftly and that the deal should close in the second quarter.

For now, AT&T’s lavish phone giveaways have helped expand its market share in the mobile business without undercutting its profitability too much. While the company started a full-on price war last year, it still managed to post earnings that topped expectations at 78 cents a share, compared with the 75-cent average estimate of analysts surveyed by Bloomberg.

Analysts including Kutgun Maral at RBC Capital Markets expect growth to moderate this year from 2021 levels, when heavy promotions encouraged customers to upgrade phones and sign up for new unlimited data plans.

AT&T is spending aggressively to catch up with its rivals on 5G. It committed nearly $9.1 billion for new airwave licenses as the top bidder in a government auction earlier this month.

There is no sign the company plans to slow down spending, with $20 billion in total capital expenditures expected for this year, according to today’s guidance. The company said such expenditure plans will help it accelerate 5G deployment and continue to gain subscribers from competitors.

AT&T also said it was focused on reducing its debt load, which had been a big drag on the company’s ability to invest in its core business. Once the spinoff of WarnerMedia is complete, the company said it plans to use the proceeds to further reduce its debt-to-earnings ratio.

Investors will be watching closely to see whether the company will make good on that promise.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

David Wainer is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications. He has covered markets, health care, economics and international affairs for Bloomberg News.