AT&T Sells Off After Earnings, Should You Buy?

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Source: Thinkstock

Source: Thinkstock

AT&T (NYSE:T) released its first-quarter earnings numbers on Tuesday. Despite the fact that the company beat earnings per share by a penny, the stock sold off more than 3 percent on Wednesday. Does this mean that there’s a buying opportunity, or is this a warning that investors should get out after a nice run-up from $32/share in early February to $35/share today?

The primary reason for the selloff was that investors are concerned that while revenue is rising, revenue per user is declining. As a result, I don’t think that investors should be concerned. Recall that recently investors were concerned about Facebook (NASDAQ:FB) and Google (NASDAQ:GOOG) because the amount of money it was receiving for advertising clicks had been falling due to the fact that a greater percentage of clicks were coming from mobile devices. Had you bought these stocks when other investors were selling on this concern, you would have performed very well. I think the same holds true for AT&T.

AT&T is seeing a boom in its Mobile Share program. This is a family program where several people use the same plan and receive a discount for doing so. This has been great for the company’s revenues, as revenues were up 3 percent in the first-quarter from the same quarter a year ago. However, because this is less expensive program, the amount of revenue that AT&T is generating per user is declining.

While investors are concerned it seems to me that this is a high quality problem to have — the company is generating more revenue, and it is building its subscriber base. These seem like reasons to be bullish.

There are other reasons to be bullish as well. For instance, a lot of customers have complained about AT&T’s service. The company is responding by shifting its legacy service network to an all IP platform. This costs billions of dollars, but the company can afford to make the upgrade. Furthermore, it may be sufficient enough to bring back dissatisfied customers who might have switched to one of AT&T’s competitors.

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