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AT&T Pinched by Cord-Cutting and Closed Theaters

10/22/2020 | 07:02am EDT

By Drew FitzGerald

AT&T Inc.'s legacy television business continued to lose customers during the third quarter while its movie business was sapped by the pandemic and new media bets struggled to gain steam.

The telecom and media giant said Thursday that 8.6 million customers had activated HBO Max, its Netflix-like streaming video service, by the end of September, trailing rivals like Disney+ and Hulu. The overall number of customers watching HBO in any form rose to 38 million in the U.S. and 57 million world-wide, exceeding the company's target for the year.

AT&T's bigger satellite-and-cable division lost 627,000 video customers over the same period. The network operator's DirecTV unit has suffered the lion's share of cord-cutting in recent years, prompting the company to explore a sale of the satellite business.

The wireless business, which remains the heart of AT&T's profit engine, added 645,000 postpaid phone subscribers. The company counted 151,000 subscribers retained under the Keep Americans Connected program as active customers even if they were behind on their bills.

Rival Verizon Communications Inc. on Wednesday posted a net gain of 283,000 postpaid phone subscribers. Verizon didn't specify the number of delinquent accounts included in that total, making comparisons difficult.

New home-internet accounts also helped blunt the impact of AT&T's pay-TV losses. The company reported a net gain of 158,000 broadband subscribers, a figure that included 104,000 accounts on a Keep Americans Connected plan.

AT&T's overall quarterly profit fell to about $2.8 billion, or 39 cents a share, compared with about $3.7 billion, or 50 cents, a year earlier. The result included about 21 cents a share of costs tied to the Covid-19 pandemic. Revenue fell to $42.3 billion from $44.6 billion a year earlier.

The company attributed a roughly $2.5 billion revenue loss to Covid-19 as theater closures shrank box-office receipts from Warner Bros. movies and wireless roaming fees dried up.

The result prompted AT&T to tweak its full-year cash-flow projections. The company said it expects free cash flow to reach $26 billion or higher with its dividend payout ratio in the high 50% range. That rate would support the nearly $15 billion in annual dividend payments projected earlier this year, before the coronavirus pandemic forced the company to withdraw its earlier forecasts.

AT&T is counting on HBO Max to offset its declining entertainment assets with new income from a growing direct-to-consumer model. HBO's existing cable-TV and online distribution model has complicated that pivot.

Some current HBO viewers remain unaware that their subscriptions entitle them to the new content-heavy app, while others are unable to upgrade because of business disputes that have kept the service off Amazon.com Inc. and Roku Inc. devices.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

10-22-20 0701ET

Stocks mentioned in the article
ChangeLast1st jan.
AT&T INC. -0.52% 28.78 Delayed Quote.0.07%
NETFLIX, INC. 2.38% 508.82 Delayed Quote.-5.90%
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VERIZON COMMUNICATIONS -0.04% 56.37 Delayed Quote.-4.05%
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Financials (USD)
Sales 2021 172 B - -
Net income 2021 20 279 M - -
Net Debt 2021 160 B - -
P/E ratio 2021 10,3x
Yield 2021 7,24%
Capitalization 205 B 205 B -
EV / Sales 2021 2,12x
EV / Sales 2022 2,12x
Nbr of Employees 230 760
Free-Float 93,6%
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Technical analysis trends AT&T INC.
Short TermMid-TermLong Term
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Mean consensus HOLD
Number of Analysts 29
Last Close Price 28,78 $
Average target price 32,53 $
Spread / Average Target 13,0%
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John T. Stankey President, CEO, COO & Director
Pascal Desroches Chief Financial Officer & Senior Executive VP
William E. Kennard Independent Chairman
David S. Huntley Chief Compliance Officer & Senior Executive VP
Matthew K. Rose Lead Independent Director
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