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Not to be outdone by rival Verizon (VZ), which posted better-than-expected Q4 results last Friday, AT&T (T) delivered an earnings beat of its own this morning, bolstered by rising momentum for 5G mobile services and strength in its fiber business. While the company's FY25 EPS guidance of $1.97-$2.07 is seemingly below expectations, that forecast excludes contributions from its 70% stake in DirecTV. AT&T's sale of DirecTV to TPG is expected to close in mid-2025 and it's unclear whether the current consensus estimate for FY25 EPS fully takes that transaction into consideration.

• Similar to VZ, AT&T easily surpassed wireless subscriber expectations, reporting net postpaid phone additions of 482,000. The launch of new 5G smartphones, including Apple's (AAPL) iPhone 16 last September, and AT&T's strategy of bundling its fiber offerings with its wireless services helped drive the subscriber gains. Encouragingly, postpaid phone ARPU still edged higher by 0.9% yr/yr to $56.72, driven by momentum for more profitable 5G accounts.
• Another key source of strength was the fiber business. In Q4, AT&T had 307,000 fiber net adds, which also beat expectations by a wide margin and marked an acceleration from last quarter's gain of 226,000 subscribers. Despite yr/yr declines in legacy voice and data services, total consumer wireline revenue increased by 3.4% to $3.46 bln, fueled by fiber revenue growth of nearly 18% to $307 mln. Better yet, AT&T is anticipating this strength to continue in 2025, forecasting consumer fiber broadband revenue growth in the mid-teens, bolstered by the rising need for faster and more reliable connectivity.
• The main soft spot in Q4 was the business wirelines business. Sluggish demand for legacy voice and data services provided a stiff headwind here as revenue fell by 10% to $4.55 bln. Due to the top-line weakness, adjusted EBITDA margin contracted by 410 bps yr/yr to 26.3%.
• Although the company's FY25 guidance isn't necessarily awe-inspiring, with consolidated service revenue growth pegged in the low-single-digit range and adjusted EBITDA growth of 3% or better, it reflects a steady business that's capable of generating strong cash flow. On that note, AT&T is forecasting free cash flow of $16.0 bln (excluding DirecTV) for FY25, which should support a healthy dividend that's currently yielding 4.9% on an annualized basis. For some context, the company generated free cash flow of $17.6 bln in FY24 and paid out $8.2 bln in dividends.

Overall, AT&T's Q4 results and outlook brought some relief that fierce competitive pressures and a lackluster consumer spending environment are taking a major toll on its business. Business is far from booming, as evidenced by the tepid Q4 top-line growth of 1.1%, which missed expectations, but AT&T's performance and guidance was better-than-feared.