Key Takeaways

  • Analysts estimate adjusted EPS of $0.78 vs. $0.84 in Q1 FY 2020.
  • Additional postpaid phone subscribers are expected to rise YOY.
  • Revenue is expected to decline as some of AT&T's legacy businesses continue to struggle.

AT&T Inc. (T) is coming off a quarter in which it posted its first net loss in at least four years. The loss was partly due to a $15.5 billion charge on its pay-TV business, a reflection of the company's ongoing shift from traditional satellite and cable TV toward online streaming. AT&T is now more reliant than ever on its mobile phone business while it grows its HBO Max streaming service amid falling adjusted earnings per share (EPS) and revenue in recent quarters.

Investors will be looking to see if AT&T can reverse those declines in quarterly profits and revenue when the company reports earnings on April 22, 2021 for Q1 FY 2021. Analysts, however, don't see a quick turnaround. They estimate that adjusted EPS will fall for the fifth consecutive quarter as revenue declines for the seventh consecutive period.

Investors will also be focused on AT&T's growth in additional postpaid phone subscribers, a key metric indicating the number of net new postpaid phone subscriptions. Analysts expect additional postpaid phone subscribers to increase from the year-ago quarter, though at a significantly slower pace than in the final two quarters of FY 2020.

Shares of AT&T have lagged the broader market over the past year. The stock's performance has been essentially flat since crashing with the rest of the market early in 2020 due to mounting fears over the spread of COVID-19. AT&T's shares have provided a total return of 3.5% over the past year, well below the S&P 500's total return of 46.5%.

One Year Total Return for S&P 500 and AT&T
Source: TradingView.

AT&T Earnings History

AT&T reported earnings for Q4 FY 2020 that narrowly beat analyst estimates. However, adjusted EPS fell 15.9%, marking the fourth straight quarterly decline. Revenue declined 2.4%, the sixth consecutive quarterly drop. The poor results were driven by revenue declines in video, Warner Bros. TV, legacy wireline services, and other areas. Rising wireless revenue only partly offset these declines. AT&T also reported the $15.5 billion asset impairment charge, as noted above.

In Q3 FY 2020, adjusted EPS fell 19.2% year over year (YOY), the biggest decline in at least 15 quarters. Revenue fell 5.0%, the second fastest decline in at least 15 quarters after the 8.9% drop in the second quarter of FY 2020. The company experienced falling revenue across many of the same lines of business as in Q4, as noted above. On a positive note, AT&T said that it saw strong growth in its domestic HBO and HBO Max subscribers.

Analysts expect earnings and revenue to continue falling in Q1 FY 2021. Adjusted EPS is expected to drop 7.8%, which would mark the fifth consecutive quarter of decline. Revenue is forecast to sink 1.1%, which would make it the seventh straight quarter of falling revenue. For full-year FY 2021, analysts expect annual adjusted EPS to fall 0.9% as annual revenue falls 0.5%. It would mark the second straight year of declines for adjusted EPS and revenue.

AT&T Key Stats
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Adjusted Earnings Per Share ($) 0.78 0.84 0.86
Revenue ($B) 42.3 42.8 44.8
Additional Postpaid Phone Subscribers (thousands) 248.1 163.0 79.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focusing on AT&T's additional postpaid phone subscribers, which the company refers to as "postpaid phone net additions". Postpaid subscriptions differ from prepaid subscriptions in that payments are made at the end of a period based on usage. This key metric indicates the net difference between the number of new postpaid phone subscriptions and the number of subscriptions that were terminated. As long as this metric is positive, it means AT&T is adding to the total number of prepaid phone subscriptions. AT&T's mobility business comprises about 42% of the company's total operating revenue and postpaid subscribers account for a large percentage of the company's total mobility subscribers. It's notable that the mobility business is the only part of the company's communications segment that experienced growth in FY 2020.

Last year was a big one for additional postpaid phone subscribers, as AT&T added about 1.5 million net new postpaid subscribers. It was its biggest increase in at least four years. The company added 800,000 net new postpaid subscribers in the fourth quarter alone, nearly three and a half times more net additions than in the year-ago quarter. Analysts expect the number of net new adds to rise 52.2% in Q1 FY 2021, a robust pace but a definite slowdown compared to the last two quarters of FY 2020. For full-year FY 2021, analysts are forecasting AT&T to post about 1.1 million additional postpaid phone subscribers. That would be a 24.8% reduction in net adds compared to FY 2020, but more than double the figure posted in FY 2019 and more than five times the net new additions in FY 2018.