With its recent release of its Q3 performances, AT&T missed Wall Street’s profit estimate of 64 cents a share by 1 cent. Although the stock only faltered by 1.4% to $34 a share in response, speculators are concerned that its long term profitability may be plagued by more ingrained issues.
As it is, AT&T faces strong turbulence going forward from lower sales, diminishing acquisition of subscribers, and weak competitive pricing. For instance, although the rate of monthly subscriber defection from mobile, landline, and other services has declined from 1.07% to 0.99%, the rate of acquiring new clients is simply too low. This year alone, while Verizon added more than 1.52 million subscribers to its existing customer base, AT&T only added 785,000. One reason for this is AT&T’s expensive product pricing relative to its competitors: in its mobile segment, one of its competitors, Sprint, already started offering a plan of $20 a month for 1 gigabyte of data, which is almost three times of AT&T’s current offering at the same price. Furthermore, as more consumers shift more focus on provider loyalty from financing plans to general subscription discounts, AT&T is experiencing a decline in its smartphone revenue that are often included in these plans. As a result, Q3 sales fell short of analysts’ predictions by $250 million.
In response to its performance, AT&T acknowledged that this shortcoming was expected: in fact, it was below the firm’s expectation of a 3 to 4% drop in its stock price. Some analysts also share the company’s optimism. To begin with, many feel that AT&T’s recent acquisition of DirecTV will help develop its presence in Mexico and Brazil: there is the potential for AT&T to expand its product through DirecTV’s existing consumer base in these countries. Moreover, speculators are also feeling bullish on the company’s other lines of services, such internet and video segments. Indeed, there may be just enough momentum behind these factors -with the former added an additional 601,000 monthly subscribers and the latter 216,000 this year alone- to drive profitability.
Personally, I believe AT&T’s recent shortcoming is just a minor disturbance from negligible bumps. The company is relatively financially healthy, and has some of the highest cash reserves at hand amongst large companies. It can definitely use them to finance competitive strategies to ameliorate its disadvantages instead of paying most as dividends.