AT&T missed on the top-line with first quarter 2019 sales coming in under Wall Street targets. DirecTV continued to bleed subscribers — including a net decline of 83,000 DirecTV Now customers — partially offset by 3.3% revenue growth at WarnerMedia although sales in the media segment were lighter than analysts expected.
The telco’s revenue for Q1 of 2019 was $44.83 billion, with net income of $4.10 billion (down 12% from $4.7 billion in the year-ago period). Adjusted earnings per diluted share were 86 cents. Wall Street analysts’ consensus estimates were revenue of $45.1 billion and EPS of 86 cents.
WarnerMedia revenue of $8.38 billion was up 3.3% year over year, below analyst estimates of $8.45 billion. Each division reporting operating income gains. Warner Bros. operating income was up 42.8% on theatrical revenue gains of 12.7% (largely from “Aquaman” carryover); Turner was up 7.0%; and HBO grew 6.0% year over year.
HBO revenue declined in the 7% in first quarter, to $1.5 billion, which was related to its ongoing carriage dispute with Dish Network since November 2018, according to AT&T. Turner revenue was down 0.4% in Q1, to $3.4 billion; Turner ad revenue dropped 6% in Q1, which AT&T said was primarily due to the shift of NCAA Final Four games (which occurred in Q2). Warner Bros. revenue was $3.5 billion, up 8.6% year over year.
AT&T noted that the “Game of Thrones” season 8 premiere broke HBO’s viewership records — and the show drove record subscribers to HBO Now — and that DC Entertainment’s “Shazam!” has already grossed more than $300 million worldwide.
Meanwhile, the AT&T Entertainment Group lost a whopping 544,000 net subscribers for DirecTV and U-verse TV, to stand at 22.4 million at quarter’s end (down 2.4% sequentially). It dropped 83,000 DirecTV Now subs, declining 5.2% in the period to 1.5 million over-the-top customers, as AT&T ended promotional pricing and hiked rates for OTT subscribers. AT&T’s pay-TV subscriber declines were even worse when considering that an accounting change (recognizing subscriber disconnections to a billing-cycle basis) resulted in 117,000 additional video customers being tallied in Q1.
Revenue in the Entertainment Group (which includes AT&T’s broadband and legacy wireline businesses) dropped 0.9%, to $11.33 billion, while operating income increased 12.9% to $1.48 billion.
The company’s key Mobility wireless segment generated revenue of $17.57 million (up 1.2% year over year), with a 4.5% decline in equipment sales offset by higher service revenue. Wall Street had pegged $17.65 billion in Q1 revenue for the segment. AT&T reported 80,000 postpaid phone net adds vs. 49,000 postpaid net adds in the year-ago quarter.
“Our first-quarter results show that we’re delivering on what we promised,” Randall Stephenson, AT&T chairman and CEO, said in announcing earnings. “We’re on plan to meet our deleveraging goals with strong free cash flow and asset sales.”
On the earnings call, Stephenson said DirecTV Now subscribers should stabilize through the back half of 2019 but acknowledged the OTT service’s growth may be challenged in Q2 as price hikes ripple through. Last month, AT&T raised the prices for all existing DirecTV Now subscribers by $10 per month (its second increase in less than a year), while discontinuing the previous plans and replacing them with two new bundles that include HBO but omit networks from programmers including A+E Networks, AMC and Discovery.
AT&T expects losses of DirecTV satellite to continue through 2019, Stephenson said. He noted that satellite customers who have canceled service are on the low-end, and added that DirecTV is planning a “thin client” internet set-top rollout later this year that he expects will moderate subscriber losses going into 2020.
The AT&T chief called out the hire of Bob Greenblatt, former head of NBC Entertainment and Showtime, as WarnerMedia Entertainment chairman and direct-to-consumer. Greenblatt joins as WarnerMedia is prepping the Q4 beta launch of a subscription VOD service centered on HBO and bolstered by Warner Bros.’ “deep” movie library. AT&T plans to hold a media day in September or October to show off the WarnerMedia SVOD service, Stephenson said: “We think our customers are going to love this product.”
Asked about Disney’s announced plans to launch Disney+ November at $6.99 monthly with original and library content, Stephenson said he was “impressed” by the presentation and said it “gave us nothing but more optimism about what we’ll be able to bring to market” with the WarnerMedia SVOD product.
AT&T amassed billions in new debt in acquiring Time Warner, and the company has been seeking to offload assets to help pay that down. The telco sold the WarnerMedia office space in New York’s new Hudson Yards development for $2.2 billion, and sold its 9.5% stake in Hulu back to Disney and Comcast for $1.43 billion. AT&T’s long-term debt stood at $163.9 billion at the end of March.
In the first quarter, AT&T said, it cut its net debt by $2.3 billion and the company expects to have paid off about 75% of $40 billion in debt related to the Time Warner acquisition by the end of 2019.