AT&T Ringing Up More Gains After Providing Bullish Q4 Update

3:16 pm Wednesday, January 05th, 2022

Coming off a difficult year in which its stock sank by 15%, AT&T’s (NYSE:T) fortunes have improved with the turning of the calendar. This morning, the rising bullish sentiment around the stock picked up steam after the company provided strong Q4 and FY21 metrics featuring the company’s highest annual postpaid phone net additions (3.2 mln) in over a decade. AT&T’s promising update follows yesterday’s development in which the company and its rival, Verizon (VZ), agreed to delay their 5G rollouts until January 19 due to airline safety concerns. Shares of both telecom companies rallied sharply on the news, as the compromise with the airline industry leadership removed an overhang on the stocks.

More broadly, a clearer runway for AT&T to fully capitalize on its 5G opportunity is a key reason why the stock is back in favor. Last year was noisy and erratic at times, but it was also transformational, as the company shed major assets to streamline its business. For instance, on August 3, AT&T closed on its deal with TPG Capital to spin-off DirecTV, removing a segment that has been an albatross ever since AT&T acquired it in 2015. Prior to that transaction, last May, AT&T announced a blockbuster deal with Discovery (DISCA) to merge its WarnerMedia division with DISCA. The deal, which could net AT&T over $43 bln in proceeds, received European Commission approval on December 22.

In total, AT&T is on track to monetize more than $55 bln in assets while also trimming about $3 bln in costs in FY21. With these efforts, the company has not only enhanced its earnings and cash flow generation capabilities, but it has also allowed itself to home in on its mobility, fiber, and HBO opportunities. Based on the improving metrics, it’s evident that AT&T’s strategy to streamline is paying off.

After generating postpaid subscriber net adds of 1.218 mln in 3Q21, AT&T delivered net adds of 1.30 mln in 4Q21. For the sake of comparison, VZ reported 699,000 retail postpaid net additions last quarter. In addition to AT&T’s improving postpaid phone churn rate, which decreased to 0.72% in Q3 from 0.77% (excluding Keep America Connected accounts) in the year-ago period, the robust subscription adds point to market share gains.

The good news doesn’t end there, as the work-from-home shift continues to drive healthy fiber subscription growth, while HBO also continues to outperform expectations. For Q4, AT&T added approximately 270,000 fiber subscribers; it ended the year with an additional 2.6 mln fiber customer locations, exceeding its forecast of about 2.5 mln. Similarly, AT&T surpassed its outlook for HBO Max and HBO subscribers, ending the year with 73.8 mln subscribers compared to its guidance of reaching the high end of a 70-73 mln range. One caveat is that a sizable portion of the HBO subscription additions likely originated from AT&T’s lower ARPU international base. However, during the Q3 earnings conference call, CEO John Stankey commented that a strong new content slate (Dune, The Matrix: Resurrection, King Richard) should accelerate domestic subscription growth in Q4.

The main takeaway is that after a year of transformation, AT&T is delivering stronger results, competing very effectively against VZ, and standing positioned to capitalize on its 5G rollout.