Analyst Downgrades AT&T On HBO Max Spend, Wireless Wars

HBO Max, WarnerMedia, earnings, investment

The streaming wars are on, let the wireless wars begin.

Investment in HBO Max, pay TV headwinds and growing competition in the wireless world led one Wall Street analyst to downgrade shares of the streamer’s parent AT&T shares today following earnings released Wednesday.

John Hodulik of UBS is worried that competition in the wireless business – AT&T’s biggest, generating 50% of profits – is intensifying and will kick into high gear with the rollout of 5G in the second half. He advises staying on the sidelines for now, taking his investment advice from ‘buy’ to ‘neutral.’

“We expect the launch of the 5G iPhone … to lift upgrade rates off record lows, increase churn and lead to intense promotional activity,” Hodulik said in a note to investors. That timing, in the second half of the year, coincides with a big investment push ahead of the launch of HBO Max in May.

In other words,  the wireless wars may be coming smack in the middle of the streaming war. Hodulik  acknowledged that, as AT&T hopes will happen, bundling new phones with HBO Max may give it an edge.

AT&T announced yesterday that investment in HBO Max last quarter in the form of foregone content licensing deals – to get WB shows like Friends and Seinfeld on the service – shaved $1.2 billion off consolidated revenue. Anticipated investment of $2 billion in HBO Max in 2020 will continue to weigh on financials, Hodulik said.

AT&T also faces secular pressure in its entertainment unit (read pay TV) and the rest of WarnerMedia. AT&T, along with the rest of the pay TV world, continues to shed video subscribers. The giant telco will loose another 2.8 billion of them this year, Hodulik estimates.

The trend is not great for HBO or for general entertainment networks – like TBS and TNT, which are suffering in the ratings.

Analysts have likened the situation to a race against time, as AT&T rushes to get HBO Max up and running while preserving the viability of its legacy media businesses.

WarnerMedia revenue fell 3.3% last quarter year-on-year. Warner Bros. sales fell 8%, with the company citing tough box office comparisons. HBO’s revenue grew 1.9%  and Turner’s 1.6%.

Hodulik sees 2.1% revenue growth at WarnerMedia in 2020 driven by continued but moderating affiliate growth, a 2% bump in advertising buoyed by political ads and the Final Four, 1% growth at HBO and 8% at WarnerBros.


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