The company lowers expected revenue forecast amidst stagnant growth and shifting market conditions.
AT&T Inc. (NYSE:T) The second largest wireless telecommunications provider in the nation slightly missed its third quarter revenue estimates. With competitive pricing pressure to match smaller rivals such as Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) clearly apparent, AT&T's latest earnings report has had some investors questioning whether or not AT&T will exceed revenue expectations.
The company lowered its 2014 revenue growth forecast to 3 percent to 4 percent due to fewer-than-expected installment plan signups, down from a previous projection of about 5 percent growth.
Investors should keep in mind that U.S. retail sales have been relatively weak. The volatility index has been at a higher level, one that is five times more since December 2012. With this index now rising close to 25.5, the stock market has been unpredictable across the board.
Third quarter earnings fell to $3 billion, or 58 cents per share. Adjusting for one-time costs, earnings came to 63 cents per share, falling short of the 64 cents expected by analysts surveyed by Zacks Investment Research. AT&T's revenue rose 2 percent to $32.96 billion in the period, also below the $33.25 billion expected.
The competition for price cuts continues. Despite third quarter failed earnings, AT&T's subscriber base remains quite strong. "Our prices have shifted on devices, allowing customers to make their own decisions. That's not pricing down," John Stephens, AT&T's chief financial officer stated to Bloomberg. The company's churn rate for postpaid accounts was less than 1 percent, its best-ever third quarter postpaid churn.
"Through all this noise, our churn has gotten better." Churn, or the rate of monthly subscriber defections, was 0.99 percent, down from 1.07 percent in the second quarter.
AT&T's rival Sprint has cut its prices aggressively in recent months. The company released a new family-plan offering customers 1 gigabyte of data for only $20 a month. AT&T did not slash prices in efforts to attract more customers, instead it added more value to its wireless plans, adding installment plans as an alternative.
Continued, robust growth in connectivity demand, persistent security challenges, and continuing innovation in devices and services are among the trends facing the telecommunications industry in the coming year, according to Craig Wigginton, vice chairman and U.S. Telecommunications leader, Deloitte & Touche LLP.
AT&T gained 2 million wireless subscribers in the third quarter. The most resulted from connected devices such as cars and tablets. Over 500,000 car data plans, 466,000 new and existing bring-your-own-device (BYOD) customers and 342,000 tablet customers were added. BYOD subscribers made up 7% of its smartphone gross adds resulting in more than four times an increase in the year-ago third quarter.
Phones continue to remain the most important area for AT&T's business and strategy. The company expects to leverage revenues by having its customers adopt larger data plans. "Our strategy is on track and our investments in giving customers best-in-class service to access content everywhere and on any screen continue to pay off," Randall Stephenson, AT&T chairman and CEO said in a statement.
AT&T's Mobile Share Value pricing model is expected to amount to two-thirds of its revenue by end of this year. These predictions are anticipated sometime in the fourth quarter or in 2015. The company strongly believes that this is a favored long-term investment and long-term plan for its customers.
Growth of other devices and tablets will also be an opportunity for additional revenue. The wireless carrier is poised to benefit in offsetting increased competition and slowed growth. AT&T will capitalize in its newer areas such as home security and connected cars. Regulatory approval is also still pending for the $49 billion takeover of DirecTV (NASDAQ: DTV) and has been exploring expansion in Latin America.
The deal for DirectTV has been touted as the only way the company can stay competitive by its leveraging bundled video and broadband services in the United States. AT&T also is focused on developing its video business. In the latest quarter, 216,000 subscribers were added to its U-verse television service.
AT&T's future growth will be derived from its data plan usage.The company's significant customer base on discounted Mobile Share Value plans are expected to upgrade to Next. Approximately 20% of the company's smartphone base is on Next and 52% of smartphone subscribers are on the non-subsidy pricing.
AT&T will have the opportunity of future revenues from 20 million potential Next customers from the upgrade. The option for larger plans and device insurance will drive such revenues.
Third-quarter sales rose to $32.96 billion, the company said Wednesday in a statement, compared with the $33.21 billion average of analysts' estimate. AT&T closed Wednesday at $34.50, down $0.12 or 0.35%, on a volume of 19.5 million shares on the Nasdaq. In after hours, the stock dropped $0.49 or 1.42% at $34.01.
For dividend investors its a great time to put AT&T on radar, a very wise choice. Dividend stocks are generally less volatile. The long term growth potential of dividends can result in approximately 40-50% of total return. With a 5.3 percent dividend yield, AT&T is one of the best dividends in terms of market dollar value.
AT&T's stock may continue to be volatile, but will competition and revenues pave way to future success?