AT&T (T, Financial) is one of the leading telecommunications company in the United States. Although its shares have been almost flat in the last year, its impressive moves have been able to register great quarterly results. Its recently reported fourth-quarter results were ahead of the Street’s estimates. Hence, its shares moved north. Let us take a look.
The results in detail
Revenue for the quarter grew 3.8% to $34.4 billion, over last year. The top line was ahead of the analysts’ estimate of $34.2 billion. The retailer benefited from its Next instalment plans, which attracted a lot of customers and resulted in higher equipment revenue. Also, its price cut on shared data plans attracted customer attention.
The wireless segment did very well as its revenue jumped 7.7%, over last year. This was driven by the addition of 1.9 million customers to the segment, out of which 854,000 of them were post-paid subscribers. Customers were mainly added due to the increasing popularity of tablets. In fact, AT&T added 969,000 monthly tablet subscribers and lost 100,000 monthly phone subscribers, mainly because of old phone users’ switch to new ones.
However, Service revenue dropped 3.7%, mainly because the customers opted for the next program. This resulted in higher equipment revenue, which rose by a whopping 72.3%. The wire-line segment, too, was not up to the mark as its revenue slipped 1%. In fact, it would have been even worse without the U-verse. U-verse category performed really well with 22% increase in revenue, clocking in at $3.9 billion. This was driven by the addition of 73,000 video subscribers and 405,000 internet subscribers. Further, the potential buyout of DirecTV will add 20 million Pay TV subscribers to the U-verse’s existing customer base of 6 million.
Moving on to the bottom line of the company, the earnings of the company stood at $0.55 per share, up 3.8% over the prior year. This was in line with the analysts’ expectations.
Some hiccups
One of the key reasons why AT&T managed to attract customers was heavy promotions, especially for iPhones and tablets. Increased promotions resulted in the shrinkage of margins to 36.7% from 42% in the previous year.
Moreover, it faces stiff competition from other industry players such as T-Mobile US and Sprint. Therefore, the company registered an increase in the churn rate to 1.22% from 0.99% in the previous quarter.
A host of acquisitions
The telecommunications service provider is eyeing on a number of acquisitions in order to grow. The pending acquisition of DirecTV is the most awaited one. This buyout will not only add new customers, but will also lead to higher synergies and expansion in Mexico.
Another potential acquisition is that of Nextel Mexico unit, the fifth largest network in the region. The deal will add 3 million subscribers, network towers and radio wave spectrum.
Furthermore, the company completed the acquisition of Grupo Iusacell SA for $2.5 billion very recently. This deal was entered into in order to have a cross-border wireless service between Mexico and the U.S.
Conclusive thoughts
Thus, the company is trying ways to expand its footprint and strengthen its presence in Mexico. The acquisitions will help the company in doing so. Its shared data plans as well as the Next instalment program have been quite successful. However, it needs to work on its churn rate and overcome competition from its peers. On the other hand, it provides regular dividends to its investors. Overall, this company might be rewarding in the long run. But as of now, it’s better to stay on the side-lines.