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.

Note from the author: If you have enjoyed this article and would like to receive real-time alerts on future ones, please follow D.M. Martins Research. To do so, scroll up to the top of this screen and click on the orange “Follow” button next to the header, making sure that the “Get email alerts” box remains checked. Thanks for reading.

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.

Tech

How 'Metroid' Fans Made a Better Game Than Nintendo

Metroid: Samus Returns isn’t the first remake of Metroid II: Return of Samus. It’s just the first released by Nintendo.

A bit of background may be in order. In 2003, Nintendo released a game called Metroid: Zero Mission, which essentially updated the graphics and play of the original 1987 NES Metroid in order to bring it more in line with the later titles of the franchise. It was a fantastic title, and fans assumed that the logical next step for Nintendo would be a similar revamp of Metroid II: Return of Samus, the 1991 sequel. After all, that game had always felt like an odd fit for the series; it was made only for the first-generation Game Boy, which could only produce basic sprites with black lines and a sickly green sheen.

But that game never materialized. So fans got antsy—then they got to building.

Metroid: Samus Returns

Nintendo

Over the next 13 years, a number of Metroid II fan remake projects emerged. Most petered out before reaching completion, as fan projects are wont to do. However, there was one exception: Milton Guasti’s cheekily named Another Metroid 2 Remake, which came out last year to a surprising amount of attention and acclaim. Many game publications reviewed it like an official release, and loved it; Guasti himself was offered a level design job. It was, at the time, the first substantial Metroid game to be released by anyone since the dismal 2010 Wii title, Metroid: Other M. The gaming world was clearly hungry for more of this series, and Guasti delivered. AM2R feels every bit a classic Metroid: claustrophobic, vibrant, tense.

Unfortunately for Guasti, his ten-year development cycle was only a little faster than Nintendo’s. When AM2R began getting acclaim, Nintendo brought legal threats and DMCA takedowns against it, and only a month after the game was released Guasti announced that all his post-release development on the title—bug patches, updates, everything—would cease. Nintendo is normally litigious, but this response felt extreme, even for them. But when they announced their own Metroid II remake this past July, it suddenly made a whole lot more sense. Now, this month, in collaboration with developer MercuryStream, Nintendo has released Metroid: Samus Returns for the Nintendo 3DS. The first official Metroid game in seven years, and the first 2D one in 13. It has a lot to live up to.

The two games stand in interesting opposition to each other. Both attempt to revitalize the same source material—but they’re made in two radically divergent ways, with two radically divergent approaches to what makes Metroid tick.

Just comparing the beginnings of the two titles is illuminating. Both open in basically the same way, following the same premise: Samus Aran, the space-faring bounty hunter, has to journey to planet SR-388, the ancestral home of the parasitic and incredibly deadly metroids. Her goal is to exterminate the aliens, descending deep into the subterranean caves under the planet’s surface to destroy them before they can threaten the galaxy. The two even share an opening image—of Samus, stepping out of her ship on the surface of the planet, and walking to the right side of the screen, down a darkened hole into the death trap of a cave system below. But that’s about where the similarities end.

AM2R quickly provides the player with two paths from which to choose, both bottomed out by damaging lava. Only one path is passable at the start, and moving forward requires a basic understanding of a handful of core Metroid skills. How to jump accurately; how to collapse into the “morph ball” mode to move through narrow passageways; how to use missiles to open locked doors. The game explains none of this to you, assuming only a fan would be playing a fan-made game. The short opening journey takes Samus to a room empty save for the molted shell of a metroid, cracked and brown—at which point a new breed of metroid, evolved from the old, swoops in, bringing with it a brief but intense test in the game’s core combat. If you succeed, you keep going, descending deeper, and the adventure really begins.

Metroid: Samus Returns

Nintendo

Samus Returns, meanwhile, is … busier. Eschewing the 16-bit pixel style of the older games, which AM2R mimics, Samus Returns instead embraces a slightly cartoonish detail-rich graphical approach. Dead space marines, the remnants of a prior failed expedition, litter the earliest caverns. Ruins of an ancient alien race can be seen, vast and foreboding, in the background. The level design, too, is busier, while simultaneously being more linear. There’s no branching core path, but there are a number of side paths that loop back into the main one, offering the illusion of complex exploration while keeping the player going where the designers want.

By the time she encounters the first metroid, which takes about ten minutes longer in this version, Samus has earned several new abilities, and the player has received an in-depth tutorial on a new melee combat system. There are several cutscenes. The whole thing buzzes with modern gaming excess: ostensibly convenient but tonally uneven.

Samus Aran works alone. That’s one of the foundational principles of Metroid. She’s the quiet hero you send in when things get really bad. She goes places no one else can, and her journeys are methodical and haunted. The best of the Metroid series is lonely, claustrophobic, tinged with curiosity and a driving sense of danger. And what’s most interesting about the quiet competition between Nintendo and their most loyal and creative fans is that the fans, or at least Milton Guasti, seem to understand this about the series more than Nintendo does. In its early moments, Samus Returns feels stuffed with the presence of its developers. It’s a guided, elaborate journey into Samus’s past.

But AM2R is quiet. It’s solitary. It remembers the sense of mystery and fear that makes Metroid hum with energy. And when I want to revisit Metroid II, I know which version is going to call me back.

Tech

How Uber is designing an app that works in more than 400 cities

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Uber may have been the target of considerable (and deserved) flack for its new logo in February, but the rideshare company has bigger design challenges on its mind than simply rebranding.

Uber wants to make transportation “as reliable as running water,” Ethan Eismann, Uber’s director of product design, said at the Semi Permanent design event in Sydney Thursday. To do that, they’re going to need an app that works in more than 400 cities and counting.

Eismann spoke with Mashable Australia after the event to discuss how the platform is approaching this considerable design task, when everything from traffic conditions to mobile coverage to local customs are enormously different in each city. Read more…

More about Design, Australia, Uber, Tech, and Apps Software


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RISC Networks Finds That IT Teams Require More Effective Data than…

Leader in Cloud and Data Center Analytics to demonstrate new Application Centric Visualization technology at AWS re:Invent 2015 in Las Vegas from October 6 – 9, 2015

(PRWeb September 24, 2015)

Read the full story at http://www.prweb.com/releases/2015/09/prweb12979745.htm

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A Wedding Ring Spins More Like a Boomerang Than a Coin  

Spin a coin on a flat surface, and it spirals much like a planet orbiting a star — at least until it runs out of steam and rattles to a stop on the table. But spin a wedding ring the same way, and it will make a surprising abrupt turn, following a trajectory more like a boomerang.

Read more…


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