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AT&T Q1 FY 2022 Earnings Report Preview: What to Look For

Focus on T postpaid wireless net adds

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AT&T Earnings Preview.

AT&T

Key Takeaways

  • Analysts estimate adjusted EPS of $0.77 vs. $0.86 in Q1 FY 2021.
  • Wireless postpaid net adds is expected to plummet on both a YOY and sequential basis.
  • Revenue is expected to decline for the third straight quarter.

AT&T Inc. (T) has suffered a string of revenue declines in recent quarters as it continues to divest key businesses. In its biggest recent divestment, the company this month completed the spinoff of WarnerMedia, which was combined with Discovery Inc. and started trading on the Nasdaq on April 11 under the ticker "WBD". With that deal behind it, AT&T's major focus now is expanding its telecom business by investing heavily in 5G, fiber, and other key growth areas.

Investors will be watching for further details on how AT&T plans to grow as a telecom-focused business when it reports earnings on April 21, 2022 for Q1 FY 2022. They expect the company's adjusted earnings per share (EPS) to fall for the first time since the final quarter of FY 2020. Revenue is expected to decline for the third straight quarter.

Investors also will be watching another key AT&T metric: wireless postpaid net adds. The metric represents the number of new postpaid wireless subscriptions less the number of canceled subscriptions. This metric is even more important now with the recent spinoff of the company's media business. For Q1, analysts estimate that the number of wireless postpaid net adds will fall sharply compared to the year-ago quarter.

Investors, however, will also still watch the performance of the newly combined media and entertainment company, which is now named Warner Bros. Discovery Inc. That is, at least, investors who plan to hold onto their shares of the new company. Because the transaction was a spinoff and not a split-off, AT&T shareholders received shares of Warner Bros. Discovery in addition to their stakes in AT&T. If it was a split-off, shareholders would have had to choose whether to retain shares in AT&T or to exchange them for shares in the new company. Also, the companies are likely to have different investing characteristics: Warner Bros. Discovery as a growth-focused media company and AT&T as a dividend-paying telecom, though its dividend will be lower than previous years.

AT&T 's shares have underperformed the broader market over the past year. The stock briefly led the market from late April 2021 to mid-May 2021. It has lagged by a wide margin ever since. Shares of AT&T have provided a total return of -6.4% over the past year, well below the S&P 500's total return of 6.5%.

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

AT&T Earnings History

AT&T reported Q4 FY 2021 earnings and revenue that beat analysts' expectations. Adjusted EPS rose 4.3% compared to the year-ago quarter, marking the fourth straight quarter of increasing earnings after four consecutive quarters of declines. Revenue fell 10.4% year over year (YOY), the second straight quarter of revenue declines. The company said that its revenue decline reflected the impact from divesting certain businesses as well as lower Business Wireline revenue.

In Q3 FY 2021, AT&T's earnings beat while revenue missed consensus estimates. Adjusted EPS increased 15.1% YOY, the fastest pace of growth since Q3 FY 2018. Revenue fell 5.7% compared to the year-ago quarter, ending a two-quarter streak of revenue growth. The company said that the revenue decline reflected its separation from its U.S. video business as well as other divestments, and lower revenues from its Business Wireline unit.

Analysts expect AT&T's financial performance to weaken in Q1 FY 2022. Adjusted EPS is expected to decline 10.9% YOY, which would be the first decline since the final quarter of FY 2020. Revenue is expected to fall 13.4% YOY, the third straight revenue decline and the fastest pace of decline out of the three. For full-year FY 2022, analysts forecast that adjusted EPS will decline 13.3%, which would be the first decline since FY 2020. Annual revenue is expected to fall 14.7%, marking the third straight year of falling revenue.

AT&T Key Stats
  Estimate for Q1 FY 2022 Q1 FY 2021 Q1 FY 2020
Adjusted Earnings Per Share ($)  0.77 0.86 0.84
Revenue ($B) 38.1 43.9 42.8
Wireless Postpaid Net Adds (thousands) 524.5 823.0 27.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on AT&T's wireless postpaid net additions, which is a metric gauging the total number of net new mobile subscribers. Mobile subscriptions include wireless services for phones, tablets, wearables, and other mobile devices. Postpaid subscriptions differ from prepaid subscriptions in that payments are made at the end of a period based on usage. This key metric reflects the net difference between the number of new postpaid wireless subscriptions and the number of subscriptions that were terminated. Now that AT&T's spinoff of WarnerMedia is complete, attracting new mobile subscribers and retaining old ones has become significantly more important to its overall business.

AT&T is coming off two years of strong growth in new mobile subscriptions, which followed two years—FY 2018 and FY 2019—of losing mobile subscribers on net. In FY 2020, the company's wireless postpaid net adds were nearly 2.2 million. In FY 2021, they were nearly 4.5 million. The company netted between 1.1 million and 1.3 million new mobile subscribers in each of the last three quarters of FY 2021. However, analysts are expecting that performance to weaken in FY 2022. In the first quarter, analysts expect wireless postpaid net adds to fall 36.3% compared to the year ago quarter, with total net additions of only 0.5 million. For full-year FY 2022, Analysts forecast that the company's wireless postpaid net adds will be 2.6 million, down 41.7% from the number of net adds in FY 2021.

Article Sources
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  1. The Wall Street Journal. "AT&T Sets WarnerMedia Spinoff Plan and Lowers Its Dividend."

  2. AT&T Inc. "AT&T and Discovery Close WarnerMedia Transaction."

  3. AT&T Inc. "AT&T to Release First-Quarter 2022 Earnings April 21."

  4. Visible Alpha. "Financial Data."

  5. AT&T Inc. "AT&T Announces Details for Completion of WM Spin-Off."

  6. AT&T Inc. "AT&T Reports Fourth-Quarter and Full-Year Results."

  7. AT&T Inc. "AT&T Reports Third-Quarter Results."

  8. AT&T Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 34.

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