Source: PaxForex Premium Analytics Portal, Fundamental Insight
If there's something AT&T's Q4 earnings report showed, it's how few people still use traditional phones. This quarter, the wireless carrier wrote off $24 billion in goodwill costs related to its aging landline phone business, as well as $1.4 billion in asset liquidation costs related to wired circuits, which are no longer needed to support copper and fiber networks.
After AT&T narrowed its focus last year by spinning off its entertainment division into Warner Bros Discovery, it has committed to developing its wireless and broadband Internet services. The company is set to spend about $24 billion on capital spending this year, about the same as in 2022, and with its new Gigapower joint venture with BlackRock, launched in December, fiber could be another big part of the picture going forward.
Still, mobile remains AT&T's main source of revenue, accounting for 69% of quarterly sales, or $21.5 billion. It may not be the fastest-growing segment, but it's what keeps the company afloat, which is why investors should pay attention to it.
Although AT&T was limited to the 21 states in which it had its wireline business, concentrated mostly in the southern and central states, wireless capabilities allow the telecommunications company to offer service anywhere, anytime. The carrier says its wireless services are the largest digital and data network in the United States, and it has managed to grow that business to more than 217 million mobile subscribers by the end of 2022, a 7.7 percent increase over the previous year.
The company added 656,000 new postpaid subscribers in Q4, far more than Verizon (217,000) but less than T-Mobile, which beat it with 927,000 net subscribers.
But even as AT&T has used discounts and exchange offers to entice people to connect, T-Mobile is trying to start a price war by lowering prices to attract new customers. Last year, the company announced its Price Lock plan, which ensures that it will never raise customers' bills, though it was also a necessary component in getting regulatory approval to merge with Sprint.
AT&T and Verizon, on the other hand, raised prices to offset the impact of inflation, and AT&T CFO Pascal Desroches noted that average mobile revenue per user was $55.43, up $1.37, or 2.5%, from last year. At the same time, AT&T's customer churn dropped to 0.84%, despite fewer promotions than its competitors.
This puts AT&T (and Verizon) at a financial and competitive advantage over T-Mobile, as the company has proven that it can raise prices and not lose customers. Its competitor had to give up margins to grow, and now it can't get them back.
Some analysts still fear that the U.S. mobile market is simply too mature to see significant additional growth and that it's more of a game of poaching customers between the major carriers. And given the prospect of a recession next year, cost-cutting is the guiding principle, while talk of growth recedes into the background.
But AT&T CEO John Stankey told analysts that while he takes a conservative view of the economy, he believes it is now "relatively stable." By providing consumers with increasingly better services, such as adding new fiber-optic offerings, AT&T will create an unbeatable value proposition. That's the goal of Gigapower, the new joint venture it founded that will be a wholesale provider of fiber-optic services to Internet service providers.
Stankey doesn't expect the venture to show much progress this year, but he hopes to add 1.5 million points by 2025 to the 30 million that AT&T already plans to cover with its existing fiber business.
AT&T is no longer trying to be all things to all people but is focusing on its area of expertise in the telecommunications market. Wireless mobile communications are the foundation on which the future is built, but by continuing to invest in next-generation opportunities like 5G networks and adding new, potentially lucrative ones like fiber optics, the stock is positioned for significant future growth.
Investors are no longer complaining about AT&T's dividend cuts under Warner Media's separation, and the payout still provides a generous yield, of about 5.7% a year. It's a nice income stream that can be kept or reinvested while patiently watching AT&T develop its strategy for future market wins.
As long as the price is above 18.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 19.29
- Take Profit 1: 20.00
- Take Profit 2: 22.00
Alternative scenario:
If the level of 18.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 18.00
- Take Profit 1: 17.00
- Take Profit 2: 16.00
