Mixed Results for AT&T

Reported revenue fell 2% year over year, but this was primarily due to a $900 million revenue reduction from choosing to net its universal service fees. Adjusted for this and other accounting changes the firm’s revenue increased slightly. Our 8.1% full-year revenue growth projection is not comparable as it is based on six months of WarnerMedia revenue, while the quarter only included 16 days of its revenue.

Like Verizon, AT&T reported improved wireless results and free cash flow generation. The firm added 46,000 postpaid wireless phone customers and 356,000 prepaid phone subscribers. While we’re happy to see these gains, the postpaid is far less than T-Mobile U.S. has been generating. Plus, AT&T’s prepaid customers generate significantly lower average revenue per user. Our biggest concern is the entertainment division. Its total subscriber base has held steady at a bit over 25 million, but it has been losing higher spending linear and satellite subscribers and gaining customers to its OTT service DirecTV Now that generate much lower revenue. This led to a revenue decline of 6.4% adjusted for accounting changes. We’ve never been fond of the DirecTV acquisition and this quarter doesn’t change our thinking.

The firm’s adjusted EBITDA margin excluding the reporting changes was 32%. While this is in line with our full-year projection of 31.8% it is down from 33.8% in the year-ago period during the historically strongest quarter of the year. This doesn’t provide much of a cushion for the fourth quarter that is historically much lower due to end of year promotions.

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.