What's Wrong With AT&T Inc. Today?

AT&T reported earnings on Tuesday, and investors didn't like the report at all. Today, Ma Bell's shares suffer the consequences.

Apr 23, 2014 at 2:00PM

The Dow Jones Industrial Average (DJINDICES:^DJI) was moving sideways today, down by less than two points as of this writing. But Dow member AT&T (NYSE:T) is hitting the brakes very hard, falling 3.2%. That sliced seven points off the Dow by itself, and is making all the difference between an up day and a down day for the elite index.

You should probably count Verizon's (NYSE:VZ) 1% price drop against AT&T as well, raising the latter telecom's negative Dow impact to a full 10 points. The driver of all this telecom-based damage on the blue-chip index comes from AT&T's first-quarter report, posted after hours last night.

It's not that the first quarter itself was terrible. AT&T reported its strongest revenue growth in two years and the best contract-bound subscriber additions in a first quarter since 2009. The latter metric wasn't even helped by the Leap Wireless acquisition, making it all the more impressive.

Non-generally accepted accounting principles earnings grew 11% year over year, beating analyst forecasts by a slim margin. The sales surge also pushed AT&T just past analyst estimates on the top line.

But AT&T committed the cardinal sin of not raising its full-year earnings guidance. The company reiterated its projection of roughly 5% earnings growth in 2014, well below the 8% growth Wall Street analysts expect.

The company expects margin compression this year as the Leap acquisition is blended into AT&T's overall operations. But that view alone wouldn't trigger an industry-wide sell-off in which all of the major telecoms show red for the day.

AT&T stores are getting plenty of foot traffic right now, but it doesn't translate into huge earnings growth anymore.

More to the point, AT&T doesn't see any positive trends to balance out the Leap-related pain.

In a call with analysts, CFO John Stephens described the wireless industry as a "noisy competitive environment." So there's pressure from smaller rivals, not to mention Verizon, that will limit how effectively AT&T can protect its subscriber growth and profit margin.

Smartphone sales are growing, but not at the torrential pace of the last five years. If there's another wave of game-changing hardware coming up (and one might be on the horizon), AT&T isn't counting on it yet.

Long story short, AT&T is seen as a bellwether for the mobile industry, and the titan is falling short of overheated expectations. At the same time, I'm not entirely sure that all of today's market reaction to this report makes sense, given that the entire sector is trading down despite much of AT&T's angst coming from stronger competition.

T Chart

T data by YCharts.

Verizon and AT&T added to an already heavy history of underperforming the market. Verizon reports results tomorrow morning, and it will either underscore or contradict what AT&T said today. Look for that report to get a clearer idea of where the American wireless industry is going.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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