AT&T (T) is one of the most important carriers in the U.S. However, the company has been facing competition due to a consolidation in the telecom market. As a result, AT&T will now have to focus aggressively on improving its competitive position, or else it runs the risk of falling behind in the market. Let's take a closer look at AT&T's business in the last quarter and see how it is positioned for long-term growth.
Strategies to drive growth
First, the number of Mobile Share accounts and connections increased sharply in the quarter, rising by more than 50% since year-end and tripling year-over-year. Second, a major chunk of the subscribers opted for and migrated to mobile share plans up 10 gigs or higher. These customers increased more than two-thirds of mobile share account activity with the gigabytes or higher plans in the quarter driving overall penetration to almost 50% which is about a 27% increase from the fourth quarter of 2013.
And finally, these new offerings lured about 1 million postpaid subscribers who were on unlimited plans to shift to mobile share pricing. All this drove the overall number of smartphones subscribers on tiered data pricing to 81%, about 6% point increase in just one quarter. Concurrently, it also added more than $1 million in new postpaid smartphone customers that includes customers who are staying with it and upgrading from feature phones. The postpaid smartphone sales for AT&T continue to run in the 90% plus range and its total postpaid smartphone base is at 78%.
Products gaining momentum
There’s a huge consumer shift to mobile share plans, AT&T Next is tremendously popular among customers, an increasing total and postpaid net adds, and the transitional way for the subsidy model. AT&T is making the buying process as open and transparent as possible and then letting customers manage the process. This is believed to be not only best for its customers, but best for its shareholders as well.
U-verse TV continued to gain popularity with adding more than 200,000 subscribers and churn continued to reduce with growing penetration. And U-verse voice, voice-over-IP product surpassed 4 million customers.
There is steady consistent growth of strategic business services such as VPN, Ethernet, hosting and other advanced IP services constituting more than 26% of total business wireline revenue and growth has increased more than 16% year-over-year.
Project Agile of AT&T is gaining traction. These are a set of new initiatives that are improving efficiency and illustrate how the company organizes and operates to deliver best-in-class customer experience as an all IP, all mobile and all cloud services company.
During the first quarter, AT&T acquired Leap which has clear and immediate benefits and value creation. From a strategic perspective, the acquisition of the Cricket brand accelerates its move into the prepaid space. It is also integrating Leap customers and its networks.
According to Yahoo Finance, the trailing P/E and forward P/E ratios of 10.21 and 12.73, respectively, represent increasing costs and ineffective company operations. The PEG ratio of 2.36, is the same as the industry’s average, indicating slow growth. The profit margin is marginal at 14.01%. The revenue per share and diluted EPS of 24.53 and 3.43, respectively, indicate very ordinary return for the investors.
The current assets of the company are also not healthy as shown by the current ratio of 0.61. However, investors are advised to invest into the company and enjoy satisfactory returns in the long run, given the fact that earnings CAGR for the next 5 years per annum is 5.60%, which is very close to the industry’s average of 6.21%.