AT&T shares dip following 97K postpaid phone losses in Q3

Shares of AT&T dipped late Tuesday after the company’s wireless business posted mixed results for the third quarter.

The nation’s second-largest mobile network operator reported total postpaid net subscriber gains of 117,000 (excluding migrations), roughly in line with Wall Street estimates, but its 241,000 net postpaid phone losses including migrations were “relatively weak,” according to MoffettNathanson Research. That marked an improvement from the net loss of 354,000 postpaid phone subscribers it posted during the same period last year, however.

Earnings per share came in at 74 cents, just missing the 75 cents expected by Thomson Reuters Revenue, according to CNBC, and overall revenue of $39.67 billion fell shy of the $40.1 billion expected by analysts. AT&T maintained its guidance for the rest of the year, though, which appeared to buoy investors somewhat as shares fell slightly less than 2% in premarket trading Wednesday.

“We continued to operate our business efficiently in the quarter,” AT&T CEO Randall Stephenson said in a press release. “At a time of transformation in our wireless and video businesses, as well as investment in growth opportunities, we’re able to maintain our full-year guidance. Wireless margins and phone churn continue to run at record levels, our fiber deployment is helping drive broadband growth and DirecTV Now had another strong quarter.”

Here’s a closer look at some of AT&T’s key quarterly metrics:

Subscribers: AT&T posted 3 million total wireless net additions including 2.3 million adds in the United States and an additional 700,000 in Mexico. Its 97,000 postpaid phone losses “were relatively positive” compared to expectations, according to Cowen and Company Equity Research, and the carrier enjoyed a record third-quarter churn of 0.84%. Postpaid churn was 1.07%, two basis points worse than the same period a year ago. Net prepaid additions came in at 324,000, significantly higher than Wall Street estimates and leaving the company’s base of prepaid users 16% larger than it was a year ago.

Financials: Overall wireless revenue declined 4.2% year over year. Wireless service revenue was down 2.8% annually, marking a slight dip in the 2.5% dip the carrier posted last quarter but in line with expectations. Adjusted EBITDA was down 2.3% year over year but narrowly beat expectations, and the company credited a record wireless service margin of 50.4% during the quarter to “strong cost management.”

FirstNet: CFO John Stephens said AT&T has invested more than $200 million thus far this year in the effort to build a dedicated network for the nation’s first responders, and “reimbursement for most of that (will) be received in the coming months.” Twenty-seven states and territories have opted in to use the network, and states that don’t opt out by the Dec. 28 deadline will automatically be signed on.

Summary: As growth in its core U.S. wireless business has slowed to a crawl, AT&T continues to bet heavily that it can leverage DirecTV and the pending Time Warner merger acquisition to create compelling bundled offerings and build a digital media and advertising business. The looming question, of course, is whether it can integrate those disparate components.

“AT&T has bet that adding content to this mix will help stem the decline,” MoffettNathanson analysts wrote in a note to investors. “By bundling telecommunications with media, their hope is to create a differentiated service, one that will be stickier for all their businesses. The hard part will be to prove they can do that without simply further discounting what are already heavily discounted services.

“And, of course, they will also have to ensure that the business they are acquiring doesn’t itself begin to decline. Media multiples have compressed sharply over the past year as investors have come to realize that OTT skinny bundles are not nearly so attractive as the old linear model.”