Do Improving Profits and Low Churn Mean All Is Well at AT&T?

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Ahead of AT&T’s (NYSE:T) fourth-quarter earnings report, investors were well aware of the wireless carrier’s problems: its loss of market share to rival Verizon (NYSE:VZ) in the post-paid mobile phone space as the larger company harnesses its expanding LTE coverage to its marketing advantage, as well as growing pressure from T-Mobile’s (NYSE:TMUS) “uncarrier” campaign, which eliminated the annual contracts and fees normally associated with mobile carriers.

Still, while eyes will be watching closely for evidence of AT&T’s profitability in the number of post-paid subscriber additions and the strength of its wireless margins, Wall Street was optimistic about the company’s results. AT&T swung to a profit in the fourth quarter of 2013, although a closer inspection of the numbers show that the company is feeling the competitive heat from T-Mobile.

AT&T beat Wall Street’s top- and bottom-line expectations. The telecommunications company earned a profit of $6.9 billion, or $1.31 per share, which represented significant growth from its year-ago loss of $39 billion, or 68 cents per share. Alongside that turnaround in earnings, revenue rose 1.8 percent to $33.2 billion. Analysts had estimated AT&T would earn 50 cents per share on sales of $33.1 billion, according to Reuters.

But while AT&T beat expectations, analysts and investors were disappointed by its wireless growth. In the three-month period, the second largest wireless provider added just 809,000 net subscribers, below the 1.25 million expected by the Street. That figure includes 566,000 wireless customers on a contract and 440,000 net new tablet customers, as well as new customers to its prepaid and reseller business, which both recorded losses.

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