Merging company

AT&T’s 10% drop isn’t a discount, but the start of more bad news

AT&T (NYSE:J) the latest quarterly results do not inspire confidence. Shares of the world’s largest telecommunications company fell 10% following the latest financial results which showed a further decline in the company’s wireless business. T stock opened at $24.06 on January 27.

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The fact that AT&T’s streaming platform, HBO Max, performed better than expected during the quarter seems to provide little reassurance to investors growing impatient with stagnant T stock performance. over the past 12 months, AT&T’s stock price is down 17% to $24.72, bringing its total decline over the past five years to 41% and making the stock a permanent laggard among stocks technologies.

AT&T Fourth Quarter Financial Statements

For the fourth quarter of last year, AT&T reported revenue at Warner Media, which operates premium TV channel HBO and streaming service HBO Max, rose 15.4% to $9.9 billion. dollars. HBO and HBO Max together added 4.3 million subscribers during the quarter, enticing viewers with new movies such as Dunes and the latest seasons of popular TV shows such as Succession.

AT&T’s total revenue was $41 billion in the quarter, beating analysts’ estimates of $40.4 billion. AT&T said it earned 78 cents per share in the quarter, above analysts’ average estimate of 76 cents.

However, despite strong results from its entertainment unit, AT&T also announced that its wireless business added fewer subscribers than expected who pay the company a monthly bill. AT&T said it saw 884,000 net new phone subscribers in the fourth quarter, lower than analysts’ estimate of 906,500 new subscribers.

Wireless subscriber numbers disappointed Wall Street. The same goes for the company’s guidance, with AT&T saying it now expects annual earnings to be between $3.10 and $3.15 per share in 2022, which is lower than the analysts’ average 2022 earnings per share (EPS) estimate of $3.21.

After a brief 2% rebound in premarket trading, T stock fell 10% immediately after its latest quarterly results, bringing its year-to-date decline to 2% in this volatile trading month. . AT&T faces fierce competition in the wireless space from competitors such as Verizon (NYSE:VZ) and T-Mobile (NASDAQ:TMUS) as telecommunications companies rush to expand their fifth-generation (5G) wireless networks.

Just days before its latest results, Verizon announced that it added 558,000 better-than-expected net new wireless subscribers in the fourth quarter. AT&T has planned capital expenditures of $20 billion for 2022, the majority of which will be for its wireless technology and infrastructure.

Other issues with T Stock

Beyond the latest impression, there are other issues holding back T stock. These include AT&T’s merger of its WarnerMedia subsidiary with Discovery (NASDAQ:DISCA) to create a new company called “Warner Bros. Discovery”. AT&T plans to sell 71% of these shares to AT&T shareholders. Also, AT&T’s DirectTV unit was sold to a private equity firm.

These changes, which will be finalized this year, will leave AT&T without more media assets. Going forward, AT&T plans to focus almost exclusively on its struggling wireless business. The fact that wireless numbers fell short of expectations in the fourth quarter led many analysts and investors to further question this strategy.

Additionally, the divestiture of media assets will see AT&T cut its dividend by 50%, a move that has angered longtime shareholders who have supported the Dallas, Texas-based company through thick and thin. AT&T’s annual dividend yield of 8.47% was a key reason to buy and hold the stock. With the quarterly payment now halved, many investors have decided to throw in the towel.

And while T stock had appeared to stabilize in recent months, leading some analysts such as CNBC’s Jim Cramer to call a bottom in the stock price, those predictions now appear to have been premature.

AT&T stock has underperformed for years. And while there remains hope that a turnaround is imminent, the reality is that the telecommunications company is in the midst of a transition that is expected to continue through most of 2022. Until the split of its media assets is finalized and AT&T is able to focus 100% on its wireless business, the company’s stock price is expected to remain depressed.

For this reason, investors should wait until AT&T’s transition is complete before taking a position in the venerable company. At present, the stock T is not A purchase.

At the date of publication, Joël Baglole did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a reporter for the Wall Street Journal and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.