Will Lower WarnerMedia Revenues Hurt AT&T's (T) Q3 Earnings?

AT&T Inc. T is scheduled to report third-quarter 2020 results before the opening bell on Oct 22. In the third quarter, the company is likely to have recorded lower revenues year over year from the WarnerMedia segment due to the adverse impacts of the coronavirus pandemic, foreign currency translation and additional investments for new content production in HBO Max.

Factors at Play

The WarnerMedia segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office and Warner Bros. It also includes AT&T’s Regional Sports Networks in the Turner division and Otter Media.

Despite higher customer adoption of HBO Max, the segment revenues are likely to have been hard hit due to a pullback by TV advertisers with no live sports and events taking place. In addition, shutdown of movie production by leading Hollywood studios delayed movie releases and series for both traditional TV and streaming services, which is expected to have affected top-line growth. Moreover, adverse foreign currency translations, evolving market conditions in the aftermath of the deadly virus outbreak and continued investments in HBO Max for new content production, foregone licensing revenues and platform costs are likely to have led to soft margins.

Key Q3 Developments

During the quarter, AT&T was reportedly contemplating the divestment of its gaming business for as much as $4 billion to improve its liquidity position and reduce the debt burden. The held-for-sale business, dubbed the Warner Bros. Interactive Entertainment, apparently evoked positive responses from potential suitors in the gaming arena.

The gaming business was acquired by AT&T as part of the blockbuster buyout of the Time Warner assets in 2018 for $85 billion. The transaction inflated the debt burden of the company, forcing it to devise ways to cut operating costs and unload assets to improve its balance sheet position. The division owns some of the famous games in the market like Harry Potter: Wizards Unite, Mortal Kombat 11, Game Of Thrones Conquest, as well as the Lego and Hitman franchises.

Overall Expectations

The Zacks Consensus Estimate for revenues from WarnerMedia is pegged at $7,265 million, indicating a modest decline from $7,846 million reported in the year-ago quarter. Operating income is pegged at $1,465 million, implying a fall from $2,529 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $1,663 million, suggesting a decline from $2,679 million.

The Zacks Consensus Estimate for total revenues of the company stands at $41,587 million, indicating a 6.7% decline from $44,588 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 77 cents per share. It had reported 94 cents in the year-earlier quarter.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the third 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 is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.53%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ATT Inc. Price and EPS Surprise

ATT Inc. Price and EPS Surprise

ATT Inc. price-eps-surprise | ATT Inc. Quote

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

Stocks to Consider

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

Bandwidth Inc. BAND is set to release quarterly numbers on Oct 29. It has an Earnings ESP of +442.85% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc ST is +4.25% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 27.

The Earnings ESP for Corning Incorporated GLW is +0.59% and it has a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Oct 27.

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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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