AT&T Reports Mixed Second-Quarter Results: Strong Mobility Performance, Fiber Growth Lags
AT&T Inc. (T) reported a slight decline in revenue for the second quarter of 2024, coming in at $29.8 billion, a 0.4% year-over-year drop. While the company’s earnings per share (EPS) met analyst expectations at $0.57, the revenue miss initially weighed on the stock. However, strong performance in its Mobility segment, driven by aggressive pricing strategies, saw the company’s stock price surge in pre-market trading.
Key Takeaways:
- Strong Mobility Performance: AT&T added an impressive 997,000 wireless net subscribers, including 419,000 postpaid phone net adds, exceeding analyst expectations. This growth was fueled by lower-priced unlimited plans, attracting budget-conscious customers in a highly competitive market.
- Fiber Growth Lags: The company’s Fiber broadband net additions came in at 239,000, falling short of analyst forecasts of 253,000. This suggests AT&T might be facing challenges in expanding its fiber footprint against rivals like Verizon Communications Inc. (VZ), which reported 391,000 total broadband net additions.
- Solid Cash Flow: Despite the revenue miss, AT&T displayed strength in its cash flow generation. The company reported $9.1 billion in operating cash flow and $4.6 billion in free cash flow, demonstrating a solid financial position.
- Maintaining Dividend Yield: The company reiterated its commitment to shareholder returns, with a current dividend yield of 6.10%. The strong free cash flow allows AT&T to increase stock buybacks and dividends.
AT&T’s Strategic Focus on Mobility
The company’s success in the Mobility segment highlights its strategic focus on attracting customers with competitive pricing. AT&T has aggressively pursued strategies like lower-priced unlimited plans to gain market share, particularly in the face of stiff competition from T-Mobile (TMUS) and Verizon. The company’s ability to attract and retain customers in a competitive environment is encouraging for investors.
Postpaid Phone ARPU Growth
Despite the aggressive pricing strategy, AT&T managed to maintain its Average Revenue Per User (ARPU) for postpaid phone-only customers at a respectable $56.42, showcasing an uptick of 1.4% year-over-year. This suggests that the company is effectively balancing subscriber growth with profitability.
Challenges in Fiber Deployment
While the Mobility segment thrived, AT&T encountered a setback in its Fiber broadband expansion. The company’s net additions fell short of analyst predictions, suggesting the company may be facing challenges in reaching its fiber deployment goals. This lagging performance could be attributed to factors like the competitive landscape, infrastructure constraints, or potential execution hurdles.
Maintaining Financial Strength and Growth Outlook
Despite the mixed performance in the second quarter, AT&T remains financially robust and continues to pursue growth opportunities.
Strong Cash Generation
The company’s strong operating and free cash flow generation provides a solid foundation for future investments and shareholder returns. The ability to generate substantial cash flow is crucial for AT&T’s ability to maintain its dividend and invest in expanding its network and services.
A Cautious Growth Outlook
AT&T maintained its full-year guidance for wireless service revenue growth in the 3% range, Broadband revenue growth of 7%+, and adjusted EPS of $2.15-$2.25. Additionally, the company expects adjusted EBITDA growth in the 3% range and a full-year free cash flow of $17 billion-$18 billion. This cautious outlook indicates the company anticipates navigating a challenging macroenvironment and maintaining a balance between growth and profitability.
Implications for Investors
AT&T’s second-quarter results present a mixed picture for investors. While the strong Mobility segment performance is a positive sign, the lagging Fiber growth and revenue miss raise concerns about the company’s overall growth trajectory.
Opportunities for Growth
Despite the challenges, AT&T has a clear path for growth. The company’s focus on Mobility and its aggressive pricing strategy can drive continued subscriber growth. The company’s strong cash flow also provides flexibility for strategic investments and shareholder returns.
Areas to Monitor
Investors should closely monitor AT&T’s progress in expanding its Fiber footprint and its ability to execute its growth strategies effectively. The company needs to demonstrate that it can navigate the competitive environment and maintain its financial strength to fully capitalize on its growth opportunities.
AT&T’s Future: A Balance of Growth and Innovation
The company’s future success hinges on its ability to strike a balance between aggressive growth in its core Mobility segment, fostering a competitive advantage in pricing, and expanding its fiber network, while also strategically allocating capital effectively to shareholder returns.
As AT&T continues to evolve in a dynamic and competitive landscape, investors will be watching closely to see how the company navigates these challenges and leverages its strengths to create long-term value.
