AT&T (T) will report second quarter results after the bell and host a call at 16:30.
Analysts are looking for EPS up 8% with revenue down 1%. Revenue has fallen year-over-year six quarters in a row. AT&T has also missed estimates on the top line twelve of the last seventeen quarters.
The company's fiscal 2018 guidance calls for adj. EPS of ~$3.50 (+15%), FCF of ~$21 billion and capital expenditures approaching $25 billion. The company will likely update guidance now that it has closed the Time Warner acquisition.
AT&T now owns Time Warner after the company prevailed in a landmark court case against the Department of Justice. The DOJ has since appealed the ruling but it seems to be moot as the ruling was staunchly in favor of AT&T.
At the Wells Fargo Securities 2018 Telecom 5G Forum one month ago, Chief Executive Randall Stephenson said the Time Warner acquisition was the culmination of a strategy to build a modern media company around four critical elements:
- Premium content with wide distribution. AT&T is in a great position with regard to both subscription and ad-supported content. HBO, Turner and Warner Bros. combined with targeted digital properties like Bleacher Report and AT&T's investment in Otter Media have the potential to drive viewer engagement to new levels.
- Direct-to-consumer relationships. A modern media company must have direct-to-consumer (D2C) relationships to remain relevant, innovate and build subscription- and ad-supported models. AT&T has more than 170 million1 D2C relationships across wireless, video and broadband, which provide valuable insights on how the company delivers content, what content it distributes and how it distributes that content.
- Advertising technology. It's critical to use customer insights from D2C relationships to change the advertising model and make ads more relevant so they deliver higher yields and optimized loads. AT&T's D2C relationships give the company insights regarding what customers are watching, where they're watching it and at what times they're watching. These insights can create incredible value for advertisers.
- High-speed networks. These networks must be able to deliver premium content to whatever screen the customer demands at the lowest cost per megabyte possible. This can include delivering content to homes, mobile devices and cars, and AT&T is investing in wireless build, fiber and new technologies like 5G to deliver a great viewing experience as demand continues to grow for 4K video and virtual and augmented reality.
AT&T is now comprised of four primary segments:
- AT&T Communications provides mobile, broadband, video and other communications services to U.S.-based consumers and nearly 3.5 million companies.
- WarnerMedia consists of the Time Warner assets: HBO, Turner and Warner Bros.
- AT&T International provides mobile services in Mexico to consumers and businesses, plus pay-TV service across 11 countries in South America and the Caribbean.
- AT&T's advertising and analytics business provides marketers with advanced advertising solutions using valuable customer insights from AT&T's TV, mobile and broadband services, combined with extensive ad inventory from Turner and AT&T's pay-TV services. A name for this company will be announced in the future.
AT&T is trying to stay ahead of the curve as advertising dollars shift to digital and over-the-top from the traditional linear TV model.
As a result, AT&T acquired AppNexus to shore up its advertising technology, a marketplace, serving publishers, agencies and marketers. AppNexus will integrate with AT&T's first-party data, premium video content and distribution. AppNexus also extends AT&T advertising and analytics' footprint globally, expanding into Asia-Pacific, Australia, Europe, and Latin America.
Some analysts are concerned with AT&T's heavy debt load, which sits at $180 billion on a net basis.
Investors will want to see stability if not modest growth in the wireless and pay TV businesses in order to help servicing its debt over time.
AT&T has a $230 billion market cap and a 6% dividend yield. The stock trades at 9x EPS and 6x EV/EBITDA. Rival Verizon has a $211 billion market cap and 4.7% dividend yield. The stock trades at 11x EPS and 7x EV/EBITDA.