Will AT&T Grow or Will The Internet Create Dislocation for the Telecommunication Giant?
AT&T (NYSE:T) has not posted stellar 1Q13 numbers, especially when comparing the company to other large industry competitors such as Verizon Wireless (VZW). T has a market cap of $186 billion with a reported 1Q13 EPS of $0.67, a 52% increase from the last quarter of 2012. Its segments provide wireless and data services along with wireline services including T's internet, TV, and voice package called U-Verse. T pays a generous dividend yielding 5.22% that continues to grow at an annualized growth rate of 4.88%.
T has increased its data revenues, service revenues, and total wireless revenues by 21%, 3.4%, and 3.4% respectively. Earnings have increased 8.5% since 1Q12. T's internet, TV, and voice package reported a 31.5% revenue growth YoY. U-Verse has also shown some growth in strategic business service revenues by growing 10.8%.
T has seen increased competition in the past couple of years with new mobile carriers carrying the much sought after iPhone. Companies like T-Mobile and Sprint have created trouble for companies giants such as T and VZW by offering customers the ability to turn in and then use unlocked iPhones as a substitute for buying a new iPhone. T's market dominance has weakened with the market for smartphones becoming increasingly saturated. Additionally, poor customer satisfaction, as reported by Consumer Reports, is dimming T's outlook for sustainable future growth.
Although total wireless revenues are up 3.4%, T's largest competitor, VZW, reported a dominant 8.6% increase in the same category. Additionally, VZW's internet, TV, and voice service, FiOS, revenue grew 15.97%, slower than U-verse's 31.5%. U-Verse is still in the early stage of its life cycle. A product goes through different stages throughout its "life", the early stage of the cycle is typically attributed with high growth. T has posted impressive U-Verse numbers YoY that should give FiOS a run for its money.
The condition of the economy and policies may contribute to the troubles T is facing. However, companies within the industry seem to be within the same economy so one could look past the issue of the state of economic conditions. Some analysts believe T must try to expand outside of the United States in order to increase its growth potential as the wireless competition intensifies and room for expansion seems limited.
AT&T is involved in a bidding war with DirecTV for Hulu, the TV streaming giant owned by Disney, 21st Century Fox, and Comcast. The acquisition of Hulu for AT&T could be what the company needs to regain a market it once controlled. For $7.99/month, customers gain access to hundreds of television shows from a variety of entertainment channels. Hulu reported $700 million in revenue, up from $420 million in 2011. The revenue stems from online advertisements and their 4 million users.
The acquisition of Hulu for AT&T could be what analysts and investors are looking for. As an online streaming giant, Hulu would expose AT&T into the online streaming market taking away revenue from online giants such as NetFlix, Amazon, and Aereo. The deal could also help AT&T's U-Verse bundle by creating some integration feature with its TV and internet package. If AT&T does acquire Hulu, look for investors to become hopeful about the company's direction and growth prospects. If DirecTV does outbid AT&T to gain Hulu, look for the company's growth prospects to be in a pickle as U-Verse loses ground to other substitutes to become the product of the past.