AT&T, Inc. Earnings: Is Long-Term Growth in Danger?

On Wednesday, AT&T (T -1.49%) will release its quarterly report, and investors have generally felt comfortable with the telecom giant's share-price performance over the past several months. Yet as competition from smaller players in the industry have forced AT&T to take action to sustain its customer base, rival Verizon (VZ -0.68%) is aiming to solidify its hold on the domestic wireless market, and AT&T's planned buyout of satellite-television company DirecTV (DTV.DL) has some investors wondering whether AT&T is moving in the right direction to keep long-term revenue and earnings moving upward.

AT&T's history in the telecom industry is without equal. Yet even as a pioneer in telecommunications, AT&T isn't impervious to competitive pressures. As up-and-coming players seek to differentiate their offerings based on price, AT&T has to match or exceed Verizon on quality and still offer an attractive value proposition to its customers. Meanwhile, changes throughout the industry have led AT&T to seek to broaden its ability to serve customers content on every device they own. Will it succeed, or will AT&T's growth slow? Let's take an early look at what's been happening with AT&T over the past quarter and what we're likely to see in its report.

Stats on AT&T

Source: Yahoo! Finance

Will AT&T earnings slip in the future?
Investors have gotten less comfortable with their views on AT&T earnings in recent months, cutting second-quarter estimates by more than 10% and adjusting full-year 2014 and 2015 projections downward as well. The stock has kept moving up, though, with a modest 3% rise since mid-April.

AT&T's first-quarter results marked a victory for the telecom provider, as it was able to produce substantial gains in subscriber counts despite pricing pressure from its smaller industry rivals. AT&T activated 1.1 million smartphones during the first quarter, adding 625,000 post-paid subscribers and increasing the percentage of its smartphone customers by six percentage points to 78%. The greater spending that smartphone customers have pushed AT&T's wireless sales up 7% overall. Even though churn rates were up slightly and about half again as high as Verizon's, AT&T did a good job of battling direct invitations from competitors to abandon its service.

Source: AT&T.

The big move for AT&T during the quarter, though, was its bid to buy DirecTV. Acquiring the satellite provider will boost AT&T's footprint substantially, with potential cost savings from offering a greater distribution network for its video content. AT&T has also tried to justify the purchase to regulators by arguing that it will allow the company to upgrade millions of households to higher-speed broadband and offer video bundles that will enhance their viewing experience. Yet one of the most valuable assets DirecTV offers AT&T is a presence in fast-growing Latin America, which has huge potential for expansion in markets from Brazil to Mexico. Given the ceiling over potential U.S.-market growth, the possibility of AT&T pushing into international markets could be the outlet that investors have waited for as offering the chance at higher revenue, but intense global competition makes that a formidable challenge for AT&T to overcome.

Yet M&A isn't the only growth avenue available to the company, as AT&T has also made strides in improving its quality. A recent survey on customer engagement and loyalty found that AT&T beat out Verizon, with faster speed and a wider selection of different customer plans that can be tailored to individual users' needs. With so much revenue potential coming from high-volume data consumers seeking the best plans at the best price, AT&T's attempt to offer everyone a tailored plan could prove valuable in customer acquisition in retention.

In the AT&T earnings report, watch for comments on how the DirecTV merger process is going and how the company plans to integrate DirecTV into its overall strategy. With investors hungry to see more growth, AT&T needs to put itself in position to benefit from strong trends supporting the wireless industry both in the U.S. and around the world. Otherwise, it will see its growth trajectory start to decline.

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