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4 Things AT&T Management Wants Investors to Know

By Daniel B. Kline - Jan 28, 2016 at 6:20AM

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The company has big plans for 2016, including new ways to integrate and exploit its DirecTV purchase.

AT&T (T 1.27%) closed out a decent year with a respectable fourth quarter.

The company gained 2.8 million wireless connections -- 2.2 million of them in the United States -- while seeing a decline in profits on that business segment. Revenue dropped 4.9% to $18.9 billion, which the company blamed partly on lower equipment sales, and a 1.7% drop in service revenues, Recode reported. AT&T gained 192,000 broadband customers, while losing 26,000 total pay-television subscribers despite a 214,000 gain by DirecTV. 

Overall, the company had consolidated revenue of $42.1 billion in final three months of 2015. That was up 22% year over year largely due to the company's acquisition of satellite television provider DirecTV. AT&T reported fourth-quarter earnings per share of $0.65 -- in line with expectations -- and a reversal of a $0.77 loss during the year-ago period.

CEO Randall Stephenson and CFO John Stephens led a call with investors immediately after earnings were released during which they shared their thoughts on the past quarter as well as the year ahead.

Image source: AT&T. 

2015 was a building year
Stephenson kicked off the call by explaining that 2015 was a building year for the company, where it worked to put the pieces in place for its future.

"Primarily we closed on the DirectTV acquisition and we secured a very deep spectrum footprint in the government auction that's giving us the network capacity for our TV Everywhere plans," he said. "And we acquired two Mexican wireless companies with extensive spectrum holdings and distribution, and this gives us access to one of the very best emerging market economies in the world."

Stephenson also noted that the DirecTV and spectrum deals were financed "at very attractive rates," allowing the company to maintain "a very strong balance sheet," while keeping its dividend in line with the company's historic norms.

It's all about connectivity
The CEO broke down the company's core strategy, saying it all comes down to getting basic connectivity right:

If you want to be an integrated solution provider, it requires more than anything else world-class high-speed secure connectivity and it can't be just wireless connectivity or broadband to the home or business but all connectivity, wireless, broadband, satellite, VPN, it all has to be integrated.

Stephenson cited TV Everywhere -- getting access to cable over the Internet wherever you happen to be -- as an example of how connectivity brought the company's plans together. He explained that DirecTV coupled with company's broadband network worked very well.

"We can now deliver the best entertainment packages over traditional linear TV or streamed over the Internet to essentially any mobile device," he said.

IoT is growing
In addition to adding spectrum and DirecTV in 2015, AT&T also expanded its Internet of Things offerings, and Stephenson expects this to pay off in the coming years.

"Our IoT solutions are not U.S. solutions, they are global solutions. We invested very early in this space and it is paying off," he said.

We now have over 26 million devices connected to our network. We're also a leader in Connected Cars. We added a million of them in the fourth quarter, and recently we completed a deal with Ford that we believe is going to connect at least 10 million cars over the next five years.

Later in the call, Stephens jumped in and elaborated on the company's IoT efforts, which he said included signing more than 300 new Internet of Things business agreements in 2015. He also cited the Ford deal as well as an agreement with BMW as being building blocks for the future. The CFO brought up two other areas in which he expects IoT growth moving forward.

"Our new Smart Cities and Connected Health initiatives demonstrate how connected devices can help cut costs, grow revenues, boost efficiency and satisfy customers' needs," he said. 

DirecTV is going to be leveraged
One of the first things AT&T did when it completed its acquisition of DirecTV was bring back unlimited data as a wireless offering for customers who also subscribe to the satellite service. Stephens said he expected to be able to use video to drive sales and lower churn across all of the company's services.

"Our new unlimited wireless data for combined wireless and TV customers has been very popular since we introduced it two weeks ago," he said. "We've already had more than half a million wireless subscribers sign up for the unlimited data plan and TV net adds are going strong as well, and we expect to launch a variety of new video entertainment packages this year."

He noted that while the addition of DirecTV has allowed the company to offer some attractive bundles, the real value is that having people add services strengthens their ties to the company. Essentially, if a subscriber gets wireless, pay TV, and Internet from AT&T, that customer becomes less likely to leave.

Daniel Kline has no position in any stocks mentioned. He fully believes Superman would just crush Batman's skull. The Motley Fool recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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