Despite Distractions, AT&T Continues to Gain Momentum

We found a lot to like in AT&T’s T second-quarter results. The wireless business continues to gain share, HBO Max again delivered solid customer additions, the consumer broadband business returned to revenue growth, and the television business improved both customer losses and profitability. The firm has also announced additional strategic moves this week that should benefit the business. The wireless partnership with Dish Network promises to add another avenue for growth, and the sale of the Latin American television business further simplifies AT&T’s operations. AT&T remains mired in transition, but we believe the resulting complexity has created an opportunity to invest. We don’t expect to materially change our $36 fair value estimate.

AT&T continues to build momentum in the wireless business, adding 789,000 net postpaid phone customers during the quarter. The firm’s postpaid customer base has grown 4% over the past year, a sharp turnaround for a firm that has been bleeding market share for nearly a decade. Revenue per customer remains a weak spot, declining 0.4% year over year despite lapping the worst of the pandemic, but this metric has been stable over the past couple of quarters. Management characterized its recent aggressiveness as a permanent shift in strategy, reinvesting cost savings in winning and retaining customers. Wireless service revenue increased 5.0% versus a year ago and EBITDA grew 2.7%. AT&T now expects wireless service revenue will grow 3% during 2021, up from 2% previously.

Regarding Dish, AT&T believes the 10-year agreement both takes revenue from T-Mobile (around $500 million the first year) and provides options for the firms to work together going forward. With Verizon planning to acquire Tracfone, the largest wholesale carrier in the United States, AT&T probably has capacity to take on Dish customers. It also sounds as if AT&T could host Dish’s spectrum on its wireless network, helping Dish meet its build-out requirements.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.