AT&T Q4 Review: Streaming Growth Wasn’t Enough

&T Q4 Review: Streaming Growth Wasn’t
Cheyne Gateley/VIP

In its Q4 earnings report Wednesday, AT&T announced its streaming service HBO Max saw activations double from the third quarter, to 17.2 million. The company boasted more than 41 million total domestic HBO Max and HBO subscribers and 61 million globally.  

Despite the noteworthy streaming growth, it wasn’t enough for investors initially, especially when HBO Max subscriber numbers are compared with the explosive growth from rivals like Disney+ and Netflix. The stock initially declined 3% in pre-market trading Wednesday before paring most of those losses during the earnings call. 

In addition to streaming growth, AT&T’s wireless business, its most profitable segment, maintained strength through the end of the year. It added a whopping 800,000 postpaid phone subscribers versus 229,000 additions in the year-ago period.  

AT&T’s streaming growth and strong wireless performances were offset by the company’s struggling WarnerMedia and pay-TV businesses. 

Cord-cutting showed no signs of cooling off in Q4. AT&T’s premium video, which include AT&T TV, U-Verse and DirecTV, shed 617,000 subscribers, while AT&T TV Now lost 27,000. As of the end of 2020, AT&T had a total of 17.16 million video subscribers, down from 20.42 million a year ago.  

Furthermore, COVID continued to take its toll on Warner Bros., with production and theatrical releases significantly impacted as a result of the ongoing pandemic. Warner Bros. revenue tumbled more than 21% in Q4, to $3.2 billion. While the release of “Wonder Woman 1984” helped to boost subscriber numbers for HBO Max, the simultaneous release in theaters and the streaming service resulted in lower revenue overall at Warner Bros, according to the company. 

It’s worth nothing that Warner Bros. plans 17 more simultaneous film releases following its first attempt with “Wonder Woman 1984.” That strategy is likely to be quite pricey for a company desperately trying to manage its weak balance sheet. 

COVID presented countless challenges for AT&T, but management’s outlook on the call for the upcoming year soothed some investor concerns. Shares of the telecom giant pared earlier losses after AT&T mentioned it will continue focusing on paying down its debt and maintain its dividend. 

The company will also continue investing heavily in HBO Max and streaming, signaling to investors it will be taking a growth-over-profitability approach going forward (much like its peers). “HBO Max is the key,” CEO John Stankey said on the earnings call. “Despite COVID challenges, we’re seeing growth where we want to see growth. We have more work to do, but I’m confident we’re on the right path.” 

Stankey announced that AT&T was still on track to launch a lower-priced HBO Max AVOD service in Q2. Many details about the upcoming service were left out, but it is expected that Stankey and the rest of the executive team would provide more details at its upcoming virtual investor day event sometime in the second half of this quarter. 

The lower-priced AVOD service could not only unlock more awareness and subscriber growth for HBO Max, but it could provide additional advertising revenue to further drive top-line growth in the long term.  

AT&T stock has been struggling relative to its peers over the past year. Shares of the telecom company were down more than 20% over the past 12 months, while Verizon sank 7%, Comcast rose 10%, Disney jumped 16% and Netflix surged 53% in the same time period. 

The fleeting nature of the stock drop Wednesday was indication that investors understand where AT&T is right now: As ugly as the cord-cutting and studio revenue losses were, the streaming and wireless gains were reassuring signs that the company has a clear understanding of how to execute its future growth strategy.