AT&T's Business Is On Post-COVID-19 Recovery

On Thursday, AT & T T posted strong wireless subscriber growth as it saw its first-quarter revenue rise, reflecting that its WarnerMedia business is continuing its recovery from effects brought on by the pandemic. Revenue and earnings topped FactSet estimates.

First Quarter Figures

With $43.9 billion  in revenue, adjusted earnings amounted to 86 cents a share on revenue of, up from last year's 84 cents in adjusted earnings per share on a revenue of $42.8 billion.

WarnerMedia revenue for the first quarter of 2021 was up 9.8% from last year's quarter as it amounted to $8.5 billion, due to higher subscription, advertising and content revenue that reflected "the partial recovery from prior-year impacts of COVID-19." Ad revenue was up 18.5% as it brought $1.75 billion in revenue to the table, with the return of sports, including the NCAA March Madness tournament that gave the network a boost.

The company spent $4.5 billion in cash for programming and produced film/TV content, rising its spending from $4.3 billion in Q1 2020, net of the elimination of transactions between WarnerMedia business units. WarnerMedia's direct-to-consumer subscription revenue for the quarter was $1.8 billion, exceeding $1.3 billion in the year-ago quarter and up about 35% YoY. Including $998 billion for content, direct costs for WarnerMedia's DTC business were $1.7 versus $911 million a year earlier.

HBO Max

In Q1, HBO Max had 9.69 million retail subscribers, as they rose 2.8 million from 6.88 million in the previous quarter. Wholesale HBO Max/HBO customers through Comcast Corporation CMCSA and other distributors ticked up 150,000 to 30.94 million. However, legacy HBO subs, including those through hotels, declined 308,000 sequentially.

During the quarter, HBO Max gained about 3 million total subscribers sequentially, continuing on its growth curve as it was powered in part by big-budget films that streamed during the quarter, eliminating fears that the boost created by WW84's Christmas release wouldn't be maintained. As of the end of March, HBO Max/HBO combined had 44.2 million domestic customers, which is 2.7 million more than 41.5 million at the end of 2020. Losses on the legacy HBO side were offset by HBO Max's retail and wholesale growth.

However, HBO Max isn't turning in the kind of eye-popping subscriber growth like Walt Disney Company's DIS Disney Plus that topped 100 million worldwide users. But AT&T noted that domestic HBO Max and HBO revenue per subscriber for Q1 was $11.72 per month, down 2% from $11.97 for HBO in Q1 2020, but still greater compared to Disney's reported ARPU of $4.03 per month for the year-end 2020 quarter which was down 28%. Meanwhile, Netflix NFLX remains king as it reported Q1 ARPU of $14.25 for its U.S./Canada region with a 9% increase.

A Focus On The Customer Experience

Compared to last year's quarter, there were no store closures to make things worse, allowing the company to record $19.0 billion in mobility revenue, up 9.4% from a year earlier. Service revenue grew just 0.6% as subscriber gains were largely offset by weak international roaming due to the pandemic. However, AT&T's equipment revenue rose 45.2% due to a greater mix of higher priced smartphones.

Promotional strategies were tailored well as they resulted in 595,000 postpaid phone net additions for the quarter and a postpaid phone churn rate of 0.76%, lower than last year's 0.86% . If we take into account all major wireless companies in the U.S., AT&T has been the most focused since the latest iPhone launch on offering promotions to existing customers as opposed to attempting to lure in customers from other carriers. The company was able to trim costs by moving to public-cloud infrastructure from on-premise data centers, and invest in these customer retention efforts that aimed to get existing customers to upgrade their plans.

The company also added 235,000 AT&T fiber customers. AT&T Chief Communications Officer, Jeff McElfresh,announced the company will simplify its various plans to make the buying experience for the customer even smoother.

In June, WarnerMedia will be coming out with a cheaper, ad-supported version of HBO Max, which will exclude the day-and-date Warner Bros. movie releases but  provide the same content as the regular package. Pricing for this tier that will not include advertising in HBO original series hasn't been announced. This year, WarnerMedia expects to launch HBO Max in 60 markets outside the U.S., including Latin America and the Caribbean in late June and 21 territories in Europe in the second half of the year.

The Winning Bundle

Chief Executive John Stankey attributed the company's performances to a successful combination of services like broadband, wireless, and HBO Max, describing it as the winning bundle that drove churn rates down as customers that used all three services have the lowest-churning rates in the company's ecosystem.

2021 Forecasts

For 2021, AT&T continues to expect consolidated revenue growth of about 1% along with stable adjusted earnings per share. The company tweaked its capital-investment projections and now anticipates about $22 billion in gross capital investment, with capital expenditures of around $17 billion, changing its prior projections of $21 billion and $18 respectively. Maintaining wireless momentum, developing HBO Max's footprint and growing its fiber business are among the biggest strategic priorities.

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