AT&T: The Company that Competes with Verizon, Comcast and Netflix

AT&T is a telecommunications giant. Its most important segment by revenue is Business Solutions (43% of total revenue), whereas Consumer Mobility presents the higher operating margins. Both these segments show alarming declines in revenue.

The telco’s largest market by far is the United States.

AT&T’s recent history

In the past few years, the company has made the news because of two major acquisitions. In 2015, AT&T bought DirectTV, a satellite television provider, for $48.5 billion. The goal of this operation was to bundle video and broadband in order to obtain synergies and compete with cable companies such as Comcast. The second acquisition was that of Time Warner for $108.7 billion in 2016. AT&T purchased a media company because it needed high-quality video content for a new streaming platform to launch in 2019. This was in order to react to the cord-cutters trend (the surge in people unsubscribing from cable TV) and compete with Netflix and other video-on-demand services.

In late 2018 and 2019, the telco company will launch its 5G wireless technology. In this sector, its main competitors are Verizon, T-Mobile and Sprint. This technology is considered to have great potential.

AT&T’s financials

The company’s revenue has been almost flat in the past 10 years. This is one of the reasons the firm’s management decided to make two big acquisitions to bet on synergies with two high-growth industries: satellite TV and streaming services.

The company’s leverage is high in absolute value, but in line with its industry average. For example, Verizon’s is above 4.

AT&T is a reference point for all those investors who look for dividends. In fact, the telecommunications company has paid out dividends for more than 30 years.

AT&T’s stock performance

In the last two years, AT&T’s stock price has declined by around 30%. This is due to its slow revenue growth and the uncertainties that stemmed from the temporary halt placed by the Department of Justice on the acquisition of Time Warner. This happened because of suspicion of an infringement of the anti-trust laws.

The company’s poor stock performance has come in a period that has seen a rise in the overall market. As you can see from the chart below, the S&P 500 has outperformed AT&T, with a growth of 35% in the last two years.

If we compare AT&T with its largest competitor, Verizon, we can see how the firm is struggling. Both companies should have hugely benefitted from Donald Trump’s business tax cut in late 2017, but from the chart below one gets the impression that only Verizon actually did.

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AT&T: investing strategies for 2019

AT&T is a dividend aristocrat, meaning a company with a long history of growing dividends. The company offers a dividend yield of 6.5% (as of November 11, 2018) (1), much higher than the S&P 500 average. The telco is also a cash cow; it generates huge yearly cash flows and is in the maturity stage of its life cycle. The problem of maturity is that it follows a growth and anticipates a decline. The firm’s management have decided to tackle its revenue decline by riding two big trends: people cutting their cable subscription and millennials’ need for video-on-demand services.

What do you think about AT&T’s future? Let me know in the comment section below.

Alphabet: Investing Strategies for 2019.

Snap: Investing Strategies for 2019.

Check out my book: A Beginners’ Guide to Stock Investing.

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