AT&T smartly spun off its troubled DirecTV business and forged a deal to combine WarnerMedia with Discovery, moves that enable the company to shift its focus to its core mobile and wireline businesses. But the road ahead may not be super smooth, as certain industry watchers believe growing that core will be a major challenge for AT&T in the years to come.
"It is tempting to think of this moment as a fresh start," MoffettNathanson analyst Craig Moffett explained in a research note (registration required) as AT&T shares began trading ex-WarnerMedia under the temporary "T.WD" symbol on the New York Stock Exchange. "Unfortunately for AT&T, the damage done by their acquisition of Time Warner, and by their earlier acquisition of DirecTV, cannot be undone with the stroke of a pen ... Working against AT&T is the poor outlook for growth."
Looking ahead, Moffett believes AT&T's core mobility segment is "poised to be a long-term share loser, notwithstanding its highly promotional stance," while its business wireline segment struggles to deliver negative mid-single digits revenue growth.
Meanwhile, AT&T's consumer wireline segment, currently representing 11% of revenues, is still mostly comprised of copper and faces a relatively flat outlook. AT&T's ambitious fiber upgrade plan – targeting about 30 million-plus locations by 2025 – "will do little more than offset the declines in the copper network, generating low single digit growth for the segment," Moffett surmised.
AT&T's consumer wireline business "has a good story to tell with its fiber expansion, but it is, one must recall, about 60% legacy copper by subscribers, which remains in decline," the analyst added.
When AT&T's core is taken together, Moffett sees a mix that will yield "little or no growth in an industry with little or no pricing power... at a time of high (cost) inflation. Call it a draw."
With that, Moffett has set a "neutral" rating on the stock and a price target on the new standalone AT&T shares of $19.
- AT&T notching 37% subscriber penetration rates in fiber markets
- DirecTV separates from AT&T, unveils 'DirecTV Stream' brand
- AT&T exits content big time in tie-up with Discovery
— Jeff Baumgartner, Senior Editor, Light Reading