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Will Adverse Coronavirus Impacts Dent AT&T (T) Q1 Earnings?

AT&T Inc. T is scheduled to report first-quarter 2020 results before the opening bell on Apr 22. In the last reported quarter, adjusted earnings beat the Zacks Consensus Estimate by a penny. In the first quarter, the company is likely to have recorded lower revenues year over year due to adverse impacts from the coronavirus pandemic, foreign currency and additional investments for new content production in HBO Max.

Factors at Play

During the first quarter, AT&T expanded its 5G network infrastructure in various markets to take the tally to 100 cities across the country. The company also launched 5G+ services in some other select locations during the quarter to increase its reach to 35 cities. These initiatives are likely to be reflected in the upcoming results.

AT&T has secured the Federal Communications Commission’s (“FCC”) Special Temporary Authority to use the additional spectrum to help meet Americans’ wireless broadband needs during the coronavirus pandemic, as countless people are forced to seek the refuge of their homes to prevent exposure to the virus. The company was granted authority for 60 days to operate in Advanced Wireless Services (AWS)-4 Band spectrum licensed to DISH. It was also granted a similar authority to use the AWS-3 spectrum, which is currently held in the FCC’s inventory, to strengthen the nationwide wireless capacity.

During the to-be-reported quarter, AT&T collaborated with Google Cloud to facilitate diverse businesses to harness edge connections and edge-computing capabilities. Powered by the company’s wide network coverage, the edge computing solutions will leverage Google Cloud's core capabilities in Kubernetes, AI, ML, data and analytics to offer a flexible tool to better analyze data and process low-latency, high-bandwidth applications. Such technology collaborations are likely to have translated into higher revenues for the Business Wireline division.

However, AT&T decided to cancel its stock buyback program due to the severity of the coronavirus outbreak. The evolving nature of the contagious disease and its grave impact on the economy have forced the company to reconsider the buyback plan, as it is yet to fathom the impact on its business. In addition, adverse foreign currency translations, a challenging global macroeconomic environment and continued investments in HBO Max in the quarter for new content production, foregone licensing revenues and platform costs are likely to have led to soft margins.

The Zacks Consensus Estimate for total revenues for the company stands at $44,272 million, indicating a decline of 1.2% from $44,827 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 85 cents per share. It had reported 86 cents in the year-earlier quarter.

Key Developments in Q1

During the quarter, AT&T’s advertising unit, Xandr, introduced an on-demand ad-service — Pause Ads — for enhancing customer experience across various traditional and connected TV channels. It leverages the innate functionality of the “pause” button, making advertisements live only when consumers take a break from the content they’re currently watching. Xandr aims to leverage the integrated platform to deliver effective ad messages to a wider population, allowing advertisers to combine the power of addressable TV with the precision and scale of the digital market. During the quarter, Xandr also launched Xandr Invest — an upgraded version of the audience-targeted TV ad sales platform. Xandr Invest is a strategic buying platform for TV ads that provides unique customer insights, thereby empowering advertisers to attract users in the most engaging way.

After a successful pilot survey in 13 markets, AT&T launched a new live TV service across the country during the first quarter, aiming to reverse the trend of video subscriber loss in its pay-TV bouquet. Dubbed AT&T TV, this broadband-delivered service offers a plethora of live TV channels, 500 hours of DVR storage space and 40,000 on-demand titles that can be streamed on a mobile device anywhere in the country. Owing to attractive pricing options, stand-out features like live TV, on-demand content and streaming apps along with a promise of easy setup, price-conscious consumers are likely to opt for AT&T TV. 

During the quarter, AT&T decided to transform its Audience Network Pay TV channel to the HBO Max Preview channel in order to support the upcoming launch of the HBO Max streaming service. HBO Max is scheduled to be launched in May 2020 with about 10,000 hours of premium content, leveraging an extensive collection of exclusive original programs and the most sought-after shows from WarnerMedia’s vast portfolio of beloved brands and libraries.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the fourth quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This, however, is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.59% with the former being pegged at 82 cents and the latter at 85 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

 

AT&T Inc. Price and EPS Surprise

 

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

InterDigital, Inc. IDCC is set to release quarterly numbers on May 7. It has an Earnings ESP of +152% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Vocera Communications, Inc. VCRA is +6.42% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Apr 23.

The Earnings ESP for CenturyLink, Inc. CTL is +1.41% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on May 6.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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