AT&T First Look: Worse Than I Had Anticipated

My cautious tone toward AT&T (T) ahead of 3Q17 earnings has been justified.

This Tuesday, the U.S.-based telecom giant posted its first all-around miss since 3Q14. Revenues of $ 39.7 billion landed -3% below year-ago levels, failing to reach consensus estimate of $ 40.1 billion as business and consumer mobility came in softer than I anticipated. Entertainment did not perform well either, but much of the weakness on this side of the business had already been pre-announced and shouldn’t have caught investors by surprise.

Credit: 9to5Mac

On mobility, AT&T’s key op metrics did not look particularly strong this quarter (see graph series below). Consumer postpaid net adds experienced a minor sequential dip to 102,000, while Business Solutions saw the same performance indicator head closer to zero, much lower than year-ago levels. On postpaid churn, consumer’s and business solutions’ ticked up to 1.17% and 1.01%, respectively — not very encouraging, but consistent with recent cyclical patterns. Even the faster-growing international segment could not celebrate much more than 129,000 net new postpaid accounts in the quarter. However, the much lower-margin prepaid business in Mexico experienced yet another quarter of over half a million net additions, surpassing the 8 million active account mark for the first time ever.

Further down the P&L, the YOY dip in gross margin that I had anticipated in my earnings preview materialized. The rate decreased by -137 bps to 52.4%, resulting in an estimated six-cent headwind to EPS on a YOY basis (see table below). As I had previously indicated, I expect gross margin to remain under pressure as the Big Four carriers in the U.S. continue to fight a fierce competitive war that, so far, has seen in the market’s underdog the only clear winner. On the entertainment side, a fast mix shift away from higher-priced legacy services (DirecTV and U-verse) will likely contribute further to the margin drag.

Not surprisingly, AT&T managed to keep opex under control, which helped to contribute ten cents to YOY EPS growth, per my estimates. Lower operating costs, in fact, fully countered gross margin deterioration, and non-GAAP op margin remained flat YOY. Further EPS upside showed up below the op profit line, which I believe is unlikely to excite analysts and investors or make them more confident about AT&T’s prospects.

On the AT&T stock

Given the results of the quarter (particularly the unexciting metrics and financial results on the mobility side), I think T will be subject to further short-term weakness in stock price. If I am correct, however, I believe depressed valuations could open up an opportunity for the long-term investor to accumulate shares at an incredible projected dividend yield of 5.8% (I am assuming the company declares a dividend increase of one penny in December 2017). With FCF improving YOY due to lower capex and tight working capital management, I continue to see the dividend payments well protected.

I have little confidence that T might see share price uplift in the near term. But despite the known challenges, I continue to find an investment in the stock a rare opportunity, particularly for investors with a long-term view and/or in search of rich, periodic cash payments.

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Disclosure: I am/we are long T.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


5 Brand New iOS 11 Features You'll Want to Try Out As Soon As Possible (Look Away, Android Fans)

Apple might be known for its devices–but the world arguably wouldn’t be the same without their innovative strides with the iPhone–but today, Apple shows off just how much it’s been looking at its program side with the official release of iOS 11. Although there are tons of features to enjoy, here are the best of the best to try out.

1. Do Not Disturb for safer driving

Based on vehicle movement or Bluetooth connections, iOS 11 automatically puts you in ‘Do Not Disturb’ mode while on the road. It can send an automatic reply if a message does come in so others know you can’t respond. I love the proactive approach and stance Apple is taking here on trying to put a stop to distracted driving and frankly, it could save lives.

2. Siri upgrades

Siri and I aren’t exactly at ‘bff status’ yet, but we’re getting there — she (or he, depending on your settings) has selective listening, which can be an aggravation at times. Needless to say, Apple has invested a lot into enhancing the overall Siri experience, including making her sound more like human speech. Siri also can now translate from English into several other languages and customize suggestion based on your device and app usage.

3. What’s up, Dock?

Sitting at the bottom of your screen, the new dock allows you to both launch and switch between apps and play with your windows. It’s much easier to work with more than one app at a time via Split View and Slide Over, and you can tweak what’s in the dock with simple drag and drop of apps and folders.

4. Camera bonuses

Looking to power up your Pokemon Go experience or just mess with your brain? On top of AR, the camera now has LED flash support, new filters, and can scan QR codes without a separate app.

5. Pay friends

Watch out, Venmo.

Owe a buddy $ 10 for pizza? Need to pay your rent to your roomie? Kid find their perfect outfit at the mall? Starting in the fall, Apple will link Apple Pay with Messages, so you can transfer money as you chat. It’s not out just yet, but it’s an incredibly smart move given that companies like Facebook include in-chat payment and digital banking is increasing in popularity. And don’t scoff, either — for all you millennials out there that swear by Venmo (like myself), this is about convenience and eliminating clicks/steps.

P.S. You can pay using Siri, too.

Needless to say, this is only the tip of the iceberg. For a full download on iOS 11’s capabilities, check out their comprehensive guide, here.


Looking For A Web Host For Your Company? Look Here!

What if you could get free web hosting? Sounds great, right? Some companies offer you this, while stating that all they need in return is for you to post their ad in a small area of your web page. They don’t tell you that unreliability might be one of the other trade-offs. Read on for more insight into what makes a good web hosting service and why you might be better off paying for one.

If you are considering using a particular web hosting site, read reviews about it. Specifically, check for reviews written by users of the site’s hosting services. Just as you wouldn’t make a major electronics purchase without first checking out product reviews, nor should you bypass looking at reviews for web hosting sites you’re considering using. Doing this now can save you frustration further down the road.

Stay away from a web host who has an issue with automating or properly administrating the most basic and necessary aspect of business. If you see they have issues with their billing and payments, then try to stay away from them since this usually means that they will have many other issues including having frequent site outages.

Consider how much downtime the web host will have when looking for one. These downtimes vary from 10% to .000001%. This means that there could be hours of downtime per week or as little as seconds. Select a host with the lowest amount of downtime that you can find.

Not only do you need to select a good web hosting company, but you need to select the right package. Usually the more expensive the package, the more bandwidth you receive as well as disk space. Disk space is important because it is where all of your pages and site information is stored. You need a large amount of disk space in order to have an advanced site.

If you’re going to use a web hosting company, make sure it’s not in danger of going out of business. Find out how long the company has been in business, and whether they have been profitable. If the company goes out of business, you could also lose access to all of the data that was stored on their servers in addition to having your website go offline.

There’s no question that free web hosting is useful to some people. It depends on the reason for your website. If you plan on doing business online, use the tips above to help choose a web hosting company that can give you fast, reliable service so that you can build a strong business foundation upon which to grow your sales.