AT&T Q3 Review: Better Than Expected, Which Means a Lot

&T Q3 Review: Better Than Expected, Which Means Lot
Yinchen Niu/Variety Intelligence Platform

Better than feared seems to get you far these days … at least if you’re a major corporation dealing with the impact of a global pandemic 

Take AT&T, for example. The stock soared 6% in early trade Thursday after reporting decent third-quarter financial results before market open. 

With everything going on macroeconomically, AT&T was able to somewhat quell investors’ concerns and show them the company was doing a good enough job despite challenging circumstances. 

Revenue during the third quarter fell 5% from last year but topped Wall Street estimates, and earnings tumbled 19% year-over-year but came in line with expectations.  

Things look a bit better on the balance sheet, too. AT&T has one of the weakest balance sheets in the industry, but management emphasized on the earnings conference call that paying down debt and boosting free cash flow remained priorities going forward. The company expects free cash flow of $26 billion or higher this year.  

The dividend is safe for now, too. “We feel good about the dividend and the ability to provide the board the flexibility to continue to pay and manage that dividend,” CEO John Stankey said on the earnings conference call Thursday. 

But as with most earnings reports, there was good and bad. 

It’s looking pretty positive for AT&T’s mobility business, which accounts for a whopping 42% of revenue. During the third quarter, AT&T added 645,000 post-paid phone subscribers 

And despite worsening cord cutting across the industry, the telecom giant reported pay-TV subscriber losses of 627,000 during the quarter, which was significantly better than 1.4 million sub losses in the same period last year. 

Then of course, there’s streaming service HBO Max, which is crucial for AT&T’s future. After launching at the end of May, HBO Max activations more than doubled from Q2 to 8.6 million. As of the end of September, HBO and HBO Max subscribers in the U.S. reached 38 million, which exceeded the company’s initial year-end target of 36 million. 

But it is very important to note that with total activations of HBO Max at 8.6 million, more than 70% of HBO’s existing subscribers who have access to HBO Max for free still have not signed up.  

It’s been more than five months since launch, and AT&T still doesn’t have HBO Max distribution deals with Amazon and Roku. No questions were asked by the analyst community on the conference call about when deals could happen. That leaves a sizable chunk of the over-the-top market still on the table.  

Taking a look more broadly at WarnerMedia, where HBO Max is housed, it was a challenging quarter. Operating revenue was down more than 10% from last year. Turner, which is the biggest part of the business, got a boost from the return of the NBA and MLB, and operating revenue rose nearly 6% compared with last year. 

But here’s where things aren’t as bright and cheery — Warner Bros. Studios. Operating revenue at Warner Bros. tanked 27% from last year despite the release of “Tenet.”  

“We didn’t walk away from the Tenet experience thinking it was a home run,” Stankey noted on the call. “I’m glad we did it … I think if theaters were open nationwide, in New York and California, we’d have some latitude to try more geographical-based releases.” 

Overall, it was a pretty good quarter and a much needed boost for AT&T’s struggling stock. Thursday’s jump helped it break a 10-day losing streak, but the stock is still massively underperforming both the broader market and its peers like Verizon and Comcast. As of Wednesday’s close, AT&T stock is down more than 30% this year, while the S&P 500 rose 6% in the same time period.