Key Takeaways
- Analysts estimate adjusted EPS of $0.80 vs. $0.83 in Q2 FY 2020.
- The number of new postpaid phone subscribers is expected to increase, a dramatic turnaround from the sharp decline in the year-ago quarter.
- Revenue is expected to rise modestly as the company divests assets and focuses on its core telecom business.
AT&T Inc. (T) is executing a broad strategy to unload businesses outside of its core wireless and broadband communications operations. The company is spinning off its DirecTV satellite business, selling its Network Cloud technology, and reportedly is in talks to sell its Xandr ad business. But AT&T’s biggest move is the planned spinoff of its giant news and entertainment business, WarnerMedia, in a merger with Discovery Inc. (DISCA). If approved, that deal would be worth $43 billion.
Investors will weigh both the longterm impact of AT&T’s divestment strategy and the immediate performance of its core business when it reports earnings on July 22, 2021 for Q2 FY 2021. Analysts expect a slight decline in adjusted earnings per share (EPS) despite a modest rise in revenue compared to the year-ago quarter.
Investors will also be watching another key metric: the number of AT&T’s additional postpaid phone subscribers, which represents the number of new postpaid phone subscriptions less the number of canceled subscriptions. Analysts expect a net increase in these subscriptions compared to a sharp net decrease in the same three-month period a year ago.
AT&T’s shares have lagged the broader market over the past year. The stock’s movements have been extremely volatile, but the overall trend since last summer has been sideways. Shares of AT&T have provided a total return of 0.4% over the past year, well below the S&P 500’s total return of 33.0%.
Source: TradingView.
AT&T Earnings History
AT&T reported Q1 FY 2021 earnings and revenue that beat analyst expectations. Adjusted EPS rose 1.9%, breaking a streak of four consecutive quarters of year-over-year (YOY) declines. Revenue grew 2.7% compared to the year-ago quarter, marking the first increase after six straight quarters of falling revenue. The company said that higher revenue in its mobility and WarnerMedia businesses more than offset declines in its domestic video, business wireline, and Latin America operations.
AT&T also posted earnings and revenue beats in Q4 FY 2020. However, adjusted EPS was down 15.9% compared to the year-ago quarter, marking the fourth straight quarter of declines. Revenue fell 2.4%, the slowest decline in the past six quarters. The drop in revenue was mostly driven by AT&T’s domestic video, Warner Bros. TV and theatrical products, legacy wireline services, and Latin America businesses. These declines were only partially offset by the company’s domestic wireless revenues, primarily from equipment sales.
Analysts expect mixed results in Q2 FY 2021. They estimate that adjusted EPS will decline 3.2% compared to the same three-month period a year ago. However, revenue is expected to rise a modest 4.3%, slightly accelerating compared to Q1’s growth, which marked the first YOY rise since Q2 FY 2019. For full-year FY 2021, analysts are forecasting essentially flat growth. They estimate that adjusted EPS will rise 0.3% and revenue will grow 0.2%. Despite those anemic numbers, that growth still would be a significant improvement compared to last year’s 10.9% and 5.2% declines, respectively.
| AT&T Key Stats | |||
|---|---|---|---|
| Estimate for Q2 2021 (FY) | Q2 2020 (FY) | Q2 2019 (FY) | |
| Adjusted Earnings Per Share ($) | 0.80 | 0.83 | 0.89 |
| Revenue ($B) | 42.7 | 41.0 | 45.0 |
| Additional Postpaid Phone Subscribers (thousands) | 258.3 | -151.0 | 74.0 |
Source: Visible Alpha
The Key Metric
As mentioned above, investors will focus on AT&T’s additional postpaid phone subscribers, which the company refers to as “postpaid phone net additions”. Postpaid subscriptions differ from prepaid subscriptions in that payments are made at the end of a period based on usage. This key metric indicates the net difference between the number of new postpaid phone subscriptions and the number of subscriptions that were terminated. As long as this metric is positive, it means AT&T is adding to its total number of postpaid phone subscriptions. Increasing phone subscriptions will be especially important if the pending merger between its WarnerMedia business and Discovery is approved. WarnerMedia accounted for about 18% of the company’s annual revenue in FY 2020. If it is spun off, other parts of the business like prepaid phone subscriptions will become ever more critical for driving revenue.
Since shedding a net 318,000 postpaid phone subscribers in FY 2017, AT&T has consistently increased the number of net new additions on an annual basis. Last year, the company added nearly 1.5 million net new postpaid phone subscriptions, which was primarily driven by 645,000 and 800,000 net additions in Q3 and Q4, respectively. In Q1 FY 2021, AT&T posted 595,000 additional postpaid phone subscribers, more than double analysts’ estimates. For Q2 FY 2021, analysts expect more net additions. That number is estimated to be less than in Q1, but still a significant reversal from the net terminations in the year-ago quarter. For full-year FY 2021, analysts forecast about 1.6 million additional postpaid phone subscribers, which would be the most net adds in at least five years.