Telecommunications giant AT&T (NYSE:T) slightly missed revenue and profit expectations when reporting its first-quarter results on Wednesday, but those numbers don’t tell the whole story. AT&T continued to gain new wireless subscribers while keeping churn at record levels, and its broadband business has impressed.
AT&T produced $3.1 billion in free movement of capital during the first quarter, and it maintained its guidance calling for between $17 billion and $18 billion in free cash flow for the full year. With stocks trading at less than 7 times the midpoint of this range, investors are getting an incredible bargain.
Wireless dynamics
While overall mobility revenues remained stable in the first quarter, the decline in equipment revenues was entirely to blame. Mobility services revenue jumped 3.3% year over year, driven by AT&T’s solid subscriber growth and higher revenue per user.
AT&T reported 349,000 postpaid phone net additions in the first quarter, while postpaid churn fell to a record low of 0.72%. The company now has 71.6 million postpaid phone subscribers, and each of them spends an average of $55.57 per month. Average revenue per user increased slightly by 0.9% year-over-year in the first quarter.
AT&T’s results contrast sharply with those of Verizon. Verizon reported a net decline of 158,000 consumer postpaid phone subscribers in the first quarter. Verizon has lost subscribers in four of the last five quarters.
For the full year, AT&T expects wireless revenue growth of about 3%.
A dual approach to broadband
AT&T’s traditional wireline business is in perpetual decline. While AT&T is struggling to make up for this drop in revenue from business customers, the company is seeing much more success on the consumer side.
Consumer wireline revenues were $3.4 billion in the first quarter, compared to $3.2 billion in the same period a year earlier. Of this total, broadband services generated $2.7 billion in revenue, up 7.7% year-over-year.
Demand for AT&T’s traditional broadband services is declining, but the company’s fiber optic Internet service is picking up the slack. Fiber optic revenue increased 19.5% in the first quarter as AT&T added 252,000 net subscribers. Fiber now accounts for the majority of AT&T’s consumer broadband revenue.
AT&T also has no problem raising prices. Average revenue per user in the consumer fiber business increased 4.1% to $68.61, and inbound ARPU is now above $70.
Beyond fiber, AT&T has entered the fixed wireless business with its Air Internet service. Other telecom giants are banking more on using their 5G networks to provide home internet access, while AT&T is using the service to fill gaps in its fiber optic network. Internet Air added 110,000 subscribers in the first quarter, a solid result for a company that was launched in some regions in August last year.
Too much pessimism
AT&T’s results in its wireless and broadband businesses will fluctuate with the economy. The company also has a heavily leveraged balance sheet, which might give some investors pause. However, the title seems valued…
