AT&T 2Q19 Earnings: Quick (Informal) Thoughts Following the Call and Our Follow Up Call

We published a note this morning that focused on an interesting shift in wireless trends that could be positive for AT&T in future quarters and negative for Verizon (LINK).  Some quick thoughts from the earnings call to add to our morning comment:

  • Wireless: they endorsed the thesis we posited this morning – the business is improving as they deploy the new spectrum (see our note on this HERE).  They are 60% done; a long way to go; and the improvements in the 60% are likely in the very early days.  They have gained a couple of hundred thousand FirstNet subscribers so far, and they are seeing gains in rural markets as they roll out new distribution along with the spectrum deployments.  These two factors probably account for most of the improvement in sub trends we have seen.  The real benefit, if churn falls across the base, is still to come.
  • Business: Randall spoke to an improvement in organic trends driven by strength in the US business environment generally. Trends weren’t quite as strong as they seemed this quarter – they benefited from some one-time IP sales and managed services is lumpy – but this is more positive commentary about secular trends than we have heard in a while.
  • Entertainment: they are still guiding to stability next year, which I think is incredible. This is the “fly in the ointment”. I would bet that subscriber trends get worse next year and that they can’t offset them with price hikes, or cost reductions.
  • Warner Media: the strategy still seems a half-baked dog’s breakfast. Very tough to have confidence in the future for the asset under AT&T’s stewardship. If this was a standalone business, I would bet against it.
  • Capital deployment: they are (more or less) committing to share repurchases later this year. They need to keep delevering beyond 2.5x at the end of the year (they are targeting 2x in mid-2022). Nevertheless, depending on what they manage in asset sales, they may be able to buy back a chunk of stock this year (not a material amount of their market cap, but enough to be noticeable).
  • Esoterica: Randall Stephenson dominated the call, which is unusual. He answered almost every question on every business unit. Not sure what to make of this, though it coincides with a shift in tone in general and an improvement in trends in a couple of the businesses. Is Randall more confident, and so putting himself back at center-stage?

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