Subscribership grew, but profit margins fell.
David Paul Morris/Bloomberg
AT&T reported a blowout quarter of mobile and streaming subscriber growth, and added better-than-expected earnings and revenues to boot.
That was more than enough to send the telecom and media giant’s stock higher in Thursday trading, but critics will point out that the rapid customer growth came at the expense of AT&T’s profit margins in the quarter. HBO Max subscribers aren’t profitable yet, and the company was aggressive with its wireless discounts and promotions in the first quarter.
AT&T (ticker: T) reported $1.04 in earnings per share, up 65% from a year ago, but that figure includes a significant pension plan-related gain in the first quarter. After accounting for such one-time or nonoperating income and costs, AT&T’s adjusted earnings came in at 86 cents per share, up two cents from the same period last year. That compares with Wall Street analysts’ average forecast of 78 cents per share.
Sales were $43.9 billion in the first quarter, ahead of the $42.7 billion consensus estimate and up almost 3% from the year-ago period. AT&T’s adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, were $13.6 billion, down nearly 5% from a year ago, as its profit margin contracted.
AT&T is focused on three core areas of its business these days: AT&T 5G, HBO Max, and AT&T Fiber. It is investing aggressively in each, buying wireless spectrum and deploying new 5G-capable network equipment; adding hours of original streaming content and debuting blockbuster films on the service; and digging thousands of miles of fiber-optic cable this year. AT&T plans to spend $22 billion on capital investment this year, all while committing to maintain its dividend—which currently yields 7% annually—and reducing the company’s hefty debt load.
The first quarter showed momentum on the subscriber front. Global HBO Max subscriptions grew by 3.3 million, to 63.9 million, in the first quarter—well above consensus. Management expects to have up to 150 million streaming subscribers by 2025, when the service could first break even.
A loss of 620,000 pay-TV subscribers won’t make any headlines, given that DirecTV and AT&T’s other video assets are in the process of being spun off.
AT&T added 235,000 fiber internet subscribers in the first quarter—to end with about 5.2 million, up by almost 27% over the past year. The company has said it plans to extend its network to 3 million new households in 2021, across 21 states. AT&T estimates that it has a market penetration of more than 35% in its existing footprint, suggesting the potential for another million or so fiber subscribers from this year’s planned buildout.
AT&T had a strong quarter of wireless subscriber growth as well. It added a net 823,000 wireless postpaid subscribers last quarter—customers who receive a monthly bill, a closely watched metric for wireless companies. That comes after two quarters of postpaid-subscriber growth above one million, rebounding from a decline in the first half of 2020.
AT&T has been offering both new and existing subscribers large subsidies on the latest smartphones and other goodies in recent months, and that promotional activity is clearly showing up in the numbers. But it also appears to be weighing on those customers’ profitability: AT&T’s postpaid average revenue per user was 3% lower in the first quarter than it had been a year earlier, partly due to the lack of international roaming revenues during the pandemic. Its wireless segment saw a two percentage-point decline in its operating income margin last quarter.
That’s in contrast to rival Verizon Communications (VZ), which reported on Wednesday. Management there is most focused on nudging its subscriber base to high-priced plans. Verizon lost 170,000 postpaid subscribers in the first quarter, but its average revenue per account rose close to 2% from a year earlier. The stock slipped on Wednesday.
In today’s buy-first-and-ask-questions-later market, big wireless and streaming subscriber growth and a top- and bottom-line beat was more than enough to send AT&T shares higher. They were up more than 4% in early trading, versus a slight decline in S&P 500 futures. Just how long AT&T can continue trading profit margins for growth with so many demands on its cash flows is a question for another day.
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