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AT&T’s Current Pain Will Be Tomorrow’s Gain

July 29, 2014 | About:
Quick Pen

Quick Pen

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The second largest U.S. telecom major AT&T (T) very recently came out with its fiscal 2014 second quarter earnings, disappointing analysts despite reporting subscriber growth and the lowest ever churn rate. The Dallas based carrier did report some great developments, however the Wall Street wasn’t quite convinced and the stock slumped in after-hours trading. Here’s what AT&T’s quarter was like.

What the Numbers Have to Say
During the quarter, AT&T reported revenues of $32.6 billion, translating into a 1.6% improvement over prior year period, however wasn’t able to meet the analyst expectations of $33.2 billion. Even the bottom line wasn’t that impressive at $3.5 billion, 7% down from last year second quarter’s $3.8 billion. Automatically thee effect was seen in the EPS which came to $0.68 against prior year’s $0.71.


Source: Engadget

What’s interesting here is that the company reported some strong growth in the fundamentals. For the three months ended, AT&T added as many as 2 million new wireless and broadband customers, pushing up the revenue from the wireless business by 3.7% to $17.9 billion. The primary reason behind the boost is the new AT&T Next plan than the company launched. On the back of growing demand for the plan, the management expects an even more impressive new customer addition number in the coming quarter, and the launch of the Mobile Share Value offering will only add to it.

At the end of the quarter, the carrier’s LTE network served more than 290 million U.S. homes. The U-Verse High Speed broadband plan was a huge hit, with more than 70% of the broadband subscribers opting for it. Another point that looked strong about AT&T’s quarter was the lowest ever churn rate of 0.86% only. This is something huge for a telecom player. Being able to bring down the churn rate is always at the top of the to-do list and the Dallas carrier carried it out smoothly.

AT&T Next - The next big thing for AT&T
The telecom major came out with the AT&T Next plan last July which allows the subscribers to pay for their devices over a period of time – mostly monthly payments. They also get the option to upgrade to newer devices every year. The plan has been received very well by the customers, and was responsible for more than 50% of subscriber additions and upgradations.

AT&T believes the future of wireless communications lies in similar plans, and customers will gradually shift from the traditional subsidized plans. So, this is a good thing, right? Well, of course. However, these same sets of events were responsible for the lower than expected revenue and net income for the telecom player. More and more subscribers opted for the plan which was cheaper than the traditional ones, resulting in declining income and profits.

Despite losing revenue, AT&T isn’t disappointed. Rather the management is glad about the developments as they believe the future lies there. It might have lost a little, but in the days to come the ccompany will benefit enormously from the new-age offering. AT&T Next and the shared data plans eventually resulted in greater data usage. This is a big boost for the company. As time progresses and consumers get habituated to using services that calls for huge data requirement, the telecom majors will witness huge top line and bottom line surge

Departing Thoughts
The numbers of the quarter may have not been that interesting, but the developments sure are. AT&T is the second largest U.S. carrier and has a reputation of providing top notch service and consumer experience. These along with the tempting plans are working well for the major. The company is also in the process of acquiring DirecTV (DTV) and is waiting for the regulatory approvals. Once the formalities are over, AT&T will add DirecTV’s expertise to its offerings and develop a bundle offer that will take care of video, voice and data requirements of its customers.

About the author:

Quick Pen
A seasonal writer with a Management Degree in Finance and interests in automotive, technology, telecommunication and aerospace sectors.

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