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A sign is posted in front of an AT&T retail store.

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AT&T‘s third quarter of 2021 was objectively good but investors who have been burned over the years won’t be won back so easily. The telecom and media conglomerate’s stock fell after the report on Thursday.

The company is in merger limbo, and there is considerable hate from the investor community for the ride that management has taken shareholders on. That includes a pair of enormous acquisitions and subsequent divestments in less than a decade, a coming dividend cut, strategic shifts, and poor stock returns over the years.

Even the analysts on Thursday morning’s earnings call, normally a supportive group—“great quarter guys!”—didn’t mince words. “I think everybody has been pretty impressed with the results of AT&T over the last year,” J.P. Morgan’s Phil Cusick told AT&T CEO John Stankey. “I would only follow up that the market is telling you that investors don’t believe it.”

AT&T (ticker: T) said Thursday that it earned 82 cents per share in the third quarter, ahead of analysts’ average estimate of 64 cents and up from 39 cents in the year-ago period. Adjusted for one-time costs and benefits, AT&T brought in 87 cents per share, also ahead of the Wall Street consensus of 78 cents and the 76 cents earned in the same quarter a year ago.

AT&T’s third-quarter revenue was $39.9 billion, below the average forecast of $40.6 billion and down 5.7% from $42.3 billion a year earlier. The third-quarter 2021 sales include a net $1.8 billion of revenues tied to DirecTV and the company’s video operations, which were spun off during the quarter in early August. Revenues were up 4.7% when excluding that unit from the 2020 third quarter.

Excluding those separated TV operations, AT&T’s adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda, were $12.6 billion, just below the Wall Street consensus call but up 2.9% year over year. AT&T’s net income was $5.9 billion, versus the $4.5 billion average call among analysts. That was up 112% from the third quarter of 2020.

Where AT&T really did well in the third quarter was on the wireless subscriber front, continuing a recent streak. The company said it added a net 1.2 million postpaid subscribers, while the average call on Wall Street was for 688,000. AT&T has now added 4.4 million wireless postpaid subscribers over the past four quarters.

In the third quarter, 928,000 of those were postpaid phones, versus the consensus call of 560,000. AT&T also said it added a net 249,000 prepaid subscribers last quarter, compared with analysts’ average estimate of 162,500.

Verizon Communications (VZ) reported on Wednesday, and said it added a net 699,000 postpaid subscribers including 429,000 postpaid phones. Both figures were well ahead of analysts’ numbers.

AT&T and its rivals have been active with promotional efforts in recent months, resulting in those elevated postpaid subscriber additions. They have offered subsidies of up to $1,000 for new and existing customers buying a new


Apple

(AAPL) iPhone.

It was also likely a difficult quarter for T-Mobile US (TMUS), which dealt with the fallout from a wide-ranging hack of its customer data in August. T-Mobile reports on Nov. 2.

AT&T is in the process of spinning off its WarnerMedia subsidiary and merging it with Discovery (DISCA), a deal that is set to close by the middle of next year. The remaining AT&T will resemble today’s company’s Communications segment.

That unit brought in $28.2 billion in revenue last quarter, slightly ahead of consensus, and $11.2 billion in Ebitda, which fell just short. The segment’s business wireline division was particularly weak in the quarter, offset by strength in consumer wireless.

Growth in fiber broadband is another leg of AT&T’s new strategy, with billions of dollars of capital investment planned to expand its network and win new customers. In the third quarter, internet subscriber growth was underwhelming: The company added a net 5,700 broadband customers, versus the consensus of 52,000. That includes a smaller-than-expected 289,000 fiber adds and a larger-than-expected loss of 261,000 DSL customers.

HBO and WarnerMedia, once a mainstay of AT&T’s earnings report, has become something of a sideshow for investors as the company prepares to spin off its entertainment assets. Heading into that spinoff, though, WarnerMedia seems to be holdings its own.

HBO Max launched in several international markets in the quarter, and grew to 69.4 million subscribers globally by the end of September, about matching estimates. Management has a year-end target of up to 73 million subscribers. The soon-to-be separated WarnerMedia segment brought in $8.4 billion in revenue—a hair better than estimates—and $2.2 billion in Ebitda, roughly in line with forecasts.

“AT&T lays claim to the most hated stock and the most maligned management team in our universe,” wrote New Street analyst Jonathan Chaplin after the report on Thursday morning. “…We continue to expect AT&T to struggle as T-Mobile and cable rise. That certainly doesn’t seem to have happened this quarter though, with exceptionally strong net adds in wireless; however, it’s unclear how much credit investors will give AT&T for the newfound resilience in its wireless business, at least in light of everything else.”

That “everything else” includes a coming dividend cut as part of the WarnerMedia transaction. AT&T’s large constituency of income-investor shareholders doesn’t like that.

And growth-oriented investors who could be interested in betting on Warner Bros. Discovery’s streaming future won’t be buying AT&T stock today, instead waiting for the spinoff to close. Yield-focused investors could be eager sellers of their new entertainment company’s shares—which won’t initially pay a dividend—meaning they could be available cheaper after the transaction, the thinking goes. There is also considerable skepticism about AT&T’s long-term guidance for the remaining telecom company. Wall Street analysts’ numbers are generally below management’s targets.

CEO Stankey knows there is a gap to close with investors: “We continue to strive to earn your confidence one quarter at a time, delivering operating performance that shows our momentum is real and sustainable,” he said on Thursday morning’s call. That’s a tall task, even for a company with a stock trading at just 8 times forward earnings and still yielding 8% in dividends annually.

AT&T stock gave up an early gain on Thursday to fall 0.7%. It had lost about 3% after dividends in 2021 through Wednesday’s close, versus a 22% return for the

S&P 500.
Verizon stock has lost 5% after dividends this year and T-Mobile stock is down 10%.

Joe Woelfel contributed reporting.

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