UPDATED at 5:30PM ET with executive comments. AT&T, which will soon officially absorb Time Warner to become a Hollywood heavyweight, reported mixed results for what will likely be its last quarter before the expected close of the $85 billion megadeal.
In the period ending September 30, earnings per share came in at 74 cents a share, a penny below estimates, with total revenue at $39.7 billion, down 2% from $40.9 billion a year ago, also slightly below Wall Street estimates. The company blamed the downturn on “declines in legacy wireline services and consumer mobility.”
AT&T, which warned earlier this month that extreme weather eroded video subscriber numbers, said it added 296,000 new subscribers to its internet-delivered TV bundle DirecTV Now, which is now at 800,000 subscribers overall. That gain did not offset the 385,000 lost subscribers to U-verse wireline cable and DirecTV. In recent months, AT&T has drawn raised eyebrows on Wall Street for its promotional campaign encouraging existing DirecTV subscribers to consider switching to DirecTV Now, which has a much lower price point and no annual contracts, meaning churn is likely to remain high.
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The exact timing of the Dept. of Justice approval of the Time Warner deal remains in flux, with the company continuing to repeat its view that it should close by the end of 2017. No new insight emerged in today’s earnings announcement or conference call with analysts to discuss the results. As a horizontal deal involving very little overlap of existing businesses, the acquisition has not faced many regulatory challenges. At some moments since it was first proposed last year, the megadeal’s connection with the political football of CNN has prompted speculation–and even tweets and comments from President Trump–about it facing scrutiny, but at this point it is a matter of when, not if, it closes.
CFO John J. Stephens faced numerous questions about the company’s video strategy during the call with analysts. While AT&T boasts 25 million total pay-TV subscribers across U-Verse, DirecTV and DirecTV Now, it has become a lead actor in the industry melodrama about cord-cutting and gradual migration to internet-delivered television.
One of the pillars of its Time Warner deal is AT&T’s conviction that it will be able to profit from blue-chip TV content thanks to a delivery system capable of implementing addressable advertising, the long-sought Holy Grail for ad buyers and sellers alike. Addressability, which is expected to become more common as 5G service grows, will enable brands to refine their efforts to target consumers on a household-by-household basis. Traditionally, many TV ad buys are considered wasteful and imprecise because they have scale but less precise targeting tools.
Stephens said AT&T has spent the past four years building a Big Data operation equipped to power a major ad platform. DirecTV and U-Verse, he said, show double-digit growth of advertising revenue in recent quarters. “If we could get the kinds of results we have had there from Time Warner, that would be very, very good,” he said. “The indications are that this can be very effective.”
With all those ad dollars in the offing, Stephens said AT&T will stay patient with DirecTV Now even as it encounters more “twists and turns along the way.”
Stephens said the service’s 800,000 total subscribers represents “incredible scale in less than a year of operation.” He said 700,000 of the total are brand-new to AT&T, with many being “cord-nevers” who never had other pay-TV subscriptions. Plus, he added, the cost to acquire a customer for DirecTV Now is “a fraction” of that for traditional systems.
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