AT&T (T), the second-largest wireless carrier, is facing a lawsuit from a group of investors. According to the lawsuit, the company misled investors about the growth of its streaming service—DIRECTV NOW.
Why are investors suing AT&T?
According to a Bloomberg report on Monday, “AT&T Inc. pressured employees to create fake accounts for its DirecTV Now streaming television service to boost subscriber numbers ahead of its 2018 merger with Time Warner Inc.”
The report also said, “The company taught and encouraged employees across the country to secretly add the product to the accounts of existing customers without their knowledge.”
AT&T said, “We plan to fight these baseless claims in court.”
AT&T’s DIRECTV NOW customers
Last month, the company announced that DIRECTV NOW was rebranded to AT&T TV NOW. AT&T TV NOW is an OTT (over-the-top) streaming service that delivers content directly to users over the Internet. The service is an alternative to signing up for a traditional cable or satellite TV connection. In the second quarter, the company lost 168,000 OTT customers compared to 342,000 net customer additions in the second quarter of 2018.
The significant YoY (year-over-year) reduction in the company’s OTT customers was due to increased prices and less promotional activities. The telecom company had 1.3 million OTT customers as of June 30.
Amazon Prime Video, Netflix (NFLX), and YouTube TV are AT&T’s other competitors in the video streaming market. In the second quarter, Netflix added 2.7 million customers worldwide. Netflix had 151.6 million total customers as of June 30.
As streaming services continue to rapidly add subscribers, traditional pay-TV operators are losing subscribers. AT&T lost 778,000 total traditional US pay-TV customers in the second quarter. In comparison, Charter Communications (CHTR) and Comcast (CMCSA) lost 150,000 and 209,000 residential video customers, respectively.
The company plans to launch a new direct-to-consumer streaming service named HBO Max early next year. According to a Reuters report, “The service will offer more than a dozen original shows and movies from stars including Reese Witherspoon and Anna Kendrick, plus programming from AT&T-owned networks such as HBO and TBS and classics from the Warner Bros film and TV library.”
AT&T stock has risen close to 5.8% since the beginning of September. On Monday, the stock closed at $37.31, which was 1.6% lower than its previous closing price, 3.7% lower than its 52-week high of $38.75, and 39.2% higher than its 52-week low of $26.80. The company’s market cap is $272.6 billion.
Based on AT&T’s closing price on Monday, the company reported returns of 1.4% in the last five trading days, 6.7% in the trailing one-month period, and 11.0% in the trailing 12-month period. The company has reported returns of 30.7% since the beginning of 2019.
Read AT&T Stock: Why Is It Falling Today? to learn more about what’s driving the stock. Read AT&T Stock: How Much Downside Do Analysts See? and Should AT&T Be on Your Shopping List in September? to learn more.