AT&T (T) together with its subsidiaries provides telecommunications services to consumers, businesses, and other providers worldwide. AT&T has its headquarters in Dallas, Texas. The company has a market cap of $201billion, and its stock price is around $35.
On October 24th, AT&T reported third quarter earnings just before the market opened. The company reported revenues of $31.4 billion which was equal to its revenues in the third quarter of 2011. Net income was $3.6 billion which was also equal to its net income in the third quarter of 2011. The company's earnings per share came in at $0.63 which was $0.02 higher than the third quarter of 2011. The difference in earnings per shares was the result of share buybacks.
In the third quarter, AT&T's year-over-year wireless revenues rose 4.5% to $14.9 billion. Wireless data revenues rose by 18.3% to $6.6 billion as subscribers made more use of tablet computers and other mobile internet applications. The company added 678,000 new subscribers, boosting its subscriber base to 105.9 million. The company increased its average revenue per subscriber by 2.4% to $65.20 per month. AT&T's CEO, Randall Stephenson, was positive about the company's third quarter earnings and noted, "Our strong performance allows us to increase our free cash flow guidance to $18 billion or higher this year, exceeding our previous outlook by $2 billion." The company's strong cash flow allowed it to repurchase 101.1 million shares for a total consideration of $3.8 billion. AT&T ended the third quarter with $2.2 billion in cash and equivalents.
AT&T is this nation's second largest wireless communications company. It lags slightly behind Verizon (VZ), which has about 110 million subscribers. The competition between the two companies is contentious, but Verizon seems to have the upper hand. In the third quarter, Verizon added 1.54 million new subscribers. This was 127% more new subscriber additions than AT&T, and indicated that Verizon was gaining market share at AT&T's expense. Verizon's third quarter earnings (revenues up 3.9%/net income up 15%) also indicated that it was outperforming AT&T.
The competition between these two companies is significant because the two of them control approximately 65% of the wireless communications market. Some analysts have dubbed their control of the market as a duopoly.
Recent News about AT&T
On October 25th, it was learned that AT&T's stock buybacks soared to $3.8B in Q3 and allowed EPS to beat estimates, even as revenue missed. Also, total wireless net additions fell to 678K from Q2's 1.3M, and postpaid net adds fell to 151K from 320K. Wireless operating margin fell 410 basis points per share on quarter to quarter, partly due to a 20% quarter to quarter increase in smartphone sales. Total churn rose to 1.34% from Q2's low 1.18%. Verizon, interestingly, is going in the opposite direction.
On October 25th, AT&T disclosed that it activated 4.7M iPhones in Q3, well above Q2's 3.7M. That figure comes in spite of Ma Bell's admission that iPhone 5 supply constraints affected its postpaid net adds. Also, on October 25th, in AT&T's Q3 earnings announcement we learned that the company's FY 2012 free cash flow guidance bumped $2B to $18B or more.
On October 19th, it was announced that AT&T is requesting the Department of Labor allow it to use $9.5B in preferred equity interest in its wireless division to help cover a pension shortfall that totaled $10.2B at the end of 2011. The contribution, which AT&T hopes will be approved by the end of 2013, will entitle cash distributions of $560M/year. AT&T would have the right to buy back the preferred interest after 5 years.
On October 9th, it was announced that IBM (IBM) and AT&T are partnering to offer a solution that includes the former's cloud storage and IT services, and the latter's telecom network. Bloomberg calls the deal the "closest relationship" IBM, whose offerings sometimes compete with the value-added services provided by telcos, has ever formed with a phone carrier.
On September 7th , it was announced that Nokia (NOK) and AT&T plan to begin selling the just-announced Lumia 920 and 820 on Nov. 2, sources tell TechRadar and The Verge. That's a few days after Microsoft's official launch date for Windows Phone 8.
On September 6th, ahead of the iPhone 5's launch, AT&T announced it has extended 4G LTE coverage to 7 new markets, has expanded coverage in 2 markets, and plans to bring coverage to 47 other markets by year's end. Its PR department worked overtime to spread the news. Analysts have argued Verizon's LTE coverage edge will allow it to take share from AT&T and Sprint (S) following the launch of the next iPhone, which is widely expected to support LTE.
AT&T's stock hit a 52 week high on September 21st, and has since seen its stock price drop by 11.8%. It also appears that Verizon and Sprint, which is the number three wireless communications company with 56 million subscribers, are picking up market share at AT&T's expense. In addition, there is a rumor that Japanese wireless communication giant Softbank (SFTBF) is interested in purchasing Sprint which would result in even more competition for AT&T.
I believe that AT&T's stock price has been slipping because there is concern amongst investors that AT&T earnings could be slowing. I like AT&T 5.1% dividend, but I understand why the stock is under pressure, and I do not see much of a chance for its stock price to move significantly higher in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.