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AT&T on the Defensive after Loss of Subscribers

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Telecom giant AT&T (T) released its earnings results yesterday for the quarter that ended in September 2019. On Thursday and Friday, the stock was floating around the $36 dollar range. But yesterday at market open, AT&T stock shot upward to $38.49, around 6% higher.

Over the last four quarters, the company has consistently reported EPS very close to what analysts estimated. This quarter, the estimated EPS stood at $0.93 while the company reported EPS of $0.94

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AT&T reported a loss of video subscribers in Q3 of 2019

One of the significant highlights in the Q3 2019 results was the loss of customers from the Entertainment Group segment. A major chunk of these customers came from the Video Connections head.

AT&T figures show that the company lost approximately 1.3 million aggregate customers. And of the total, 1.163 million belong to the Premium TV and around 0.2 million subscribers came from AT&T Now. These reported numbers were in line with the company’s release dated September 11.

In the September 11 release, AT&T announced that its third-quarter revenues could be directly affected—especially revenues from the Entertainment Group segment. The company was, reportedly, focusing on controlling costs as well as targeting high-value customers with the intent to manage and stabilize EBITDA figures for the Entertainment Group. In the announcement, John Stephen, AT&T CFO, had already mentioned the potential loss of subscribers.

At the time, the company was expecting around 300,000–350,000 premium video subscribers to move away from AT&T. One of the main causes of this loss was restrictions on AT&T’s promotional pricing.

Also, the company was negotiating some content deals. These deals would provide AT&T the right to retransmit the content and allow the telecom company to control content costs. However, in turn, these agreements led to other setbacks, like blackouts from content providers.

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Entertainment Group segment highlights

The Entertainment Group comprises Over the Top services, Broadband, and Voice communication services as well as Advertising on video distribution platforms. AT&T faced drastic headwinds for the video entertainment segment and the Legacy voice and Data Services.

For the third quarter of 2019, the video entertainment segment reported operating revenues of $7.933 billion, versus $8.283 billion for the same period a year ago. The total operating revenues for the Entertainment group in Q3 of 2019 were $11.197 billion. And the corresponding figure for the third quarter a year ago was $11.589 billion

AT&T’s operating income for the latest quarter was $1.084 billion, versus $1.103 billion in the third quarter of 2018. The reported operating income for Q3 of 2019 was down 1.7% year-over-year.

The number of video connections in the quarter came in drastically lower than the third quarter of 2018. The total subscribers for AT&T video connections in Q3 of 2018 were 25,152, versus 21,563 for Q3 of 2019. Of these subscribers, premium TV segment subscriptions fell 12.3% year-over-year. AT&T Now subscribers in Q3 of 2019 fell 38.4% from Q3 of 2018.

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AT&T’s loss of subscribers trend

As per yesterday’s earnings results, AT&T Premium TV subscribers are just over 20 million, and AT&T Now subscribers are just above 1 million. In 2016, AT&T had approximately 25.3 million subscribers. But in approximately three years, that number has fallen by 5 million. The revenue numbers dipped from $8.3 billion in Q3 of 2018 to $7.9 billion in the Q3 of 2019.

To cover the reduction in subscribers, AT&T has been trying to increase its average revenue per customer. According to 3Q19 highlights, the ARPU (average revenue per user) from the Premium segment is $121.35 per month. Also, the ARPU for the third quarter of 2019 has increased by 5.6%.

AT&T outlook for investors

The company could be looking for some respite from these subscription losses. And the launch of HBO Max could make the difference.

HBO Max is expected to launch in 2020. And by 2025, the company expects to see around 80 million subscribers worldwide on the platform.

AT&T is expected to unveil HBO Max—its over-the-top product—on WarnerMedia Day 2019. The event will take place in California on October 29.

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