AT&T Is in a World of Hurt

You would think AT&T would have learned its lessons by now. But once again, we find a tech company clinging to the status quo.

The world of technology is filled with boneheaded quotes. Take the following infamous quips from key tech figures, for example:

“There is no reason for any individual to have a computer in his home.” — Ken Olsen, co-founder of Digital Equipment Corp.

“640K [bytes of memory] ought to be enough for anybody.” — Bill Gates, founder of Microsoft Corp.

“I think there is a worldwide market for maybe five computers.” — IBM President Thomas J. Watson.

Granted, these quotes come from the early days of tech … back when the personal computer itself was a disruptive technology poised to change the world forever.

We are on the verge of another disruption in technology. The advent of online streaming entertainment is set to rock the cable/satellite TV business to its core.

728x170_BetterThanSS_article
728x170_CanYouIdentifyRock_article
728x170_Expert-dow-surges-1000_article
728x170_2-in-1-trillion-howto-smallstake_updated-article
728x170_34-Billion-payout-MattCheck-article
728X170PRL-IOT_Article_3AdsIn1_article

You would think that technology companies would have learned their lessons by now. Such is not the case. Once again, we find similarly short-sighted statements from technology companies clinging to the status quo.

Today’s quote (or rather paraphrasing) comes from AT&T Inc. (NYSE: T) CFO John Stephens. During AT&T’s third-quarter conference call to investors, Stephens implied that while there were signs of cord-cutting during the quarter, those pressures would lessen in the fourth quarter. The statement prompted the following headline from TheStreet.com: “AT&T Exec Says Cord-Cutting Will Ease Soon (Right…).”

In fact, Stephens reiterated AT&T’s company line from September when it first warned about subscriber losses. He blamed it on the weather.

A Storm Is Coming

Don’t get me wrong. Seasonal issues and hurricanes can have a real impact on subscriber numbers. But AT&T didn’t only lose 90,000 subscribers due to natural disasters. It lost 390,000 traditional pay-TV subscribers in total.

Those 300,000 subscribers that AT&T didn’t talk about signed up for the company’s DirecTV Now online streaming service. So, while the company only technically lost 90,000 subscribers, it lost a great deal of revenue from customers cutting the cord with their traditional service and going with a cheaper online option.

As I’ve pointed out before, online streaming is only gaining momentum, and will eventually outpace traditional cable-TV services in both subscribers and revenue.

Because of this, AT&T is in a world of hurt, and it’s already showing in the company’s earnings report. Revenue was down more than expected in the third quarter, falling 3% to $39.67 billion.

While the company may indeed see a bump in the fourth quarter, likely due to the holiday season, expect things to get worse heading into 2018 for AT&T’s traditional pay-TV services.

One More Thing…

If pay-TV subscribers were AT&T’s only issue, it might not be in too much trouble. But the company’s other major moneymaker, wireless, is losing ground as well. AT&T reported 900,000 fewer cellphone upgrades in the latest quarter.

The blame fell squarely on Apple. Industry analysts believe that customers are putting off upgrades until Apple’s iPhone X launches. Furthermore, AT&T lost 97,000 monthly wireless subscribers.

It’s another situation that is only going to get worse … especially with companies like T-Mobile offering free Netflix with its unlimited data family plans. At this point, the Time Warner merger will only help AT&T play catch-up. And only for so long, as Sprint and T-Mobile are once again entertaining a merger.

All in all, this places AT&T far behind the game, and on the hook for an expensive Time Warner buyout.

Investing in AT&T

As a result of AT&T’s third-quarter earnings report, T stock is trading down sharply and is hovering just above two-year lows. Furthermore, the shares remain mired in bear-market territory beneath both their 50- and 200-day moving averages, and this post-earnings plunge has just dug an even deeper hole to climb out of.

You would think AT&T would have learned its lessons by now. But once again, we find a tech company clinging to the status quo.

That said, shorting AT&T right now would not be a great idea. The shares are trading in oversold territory, and Wall Street analysts are sure to emerge to defend the stock in the weeks to come. A short-term bounce is certainly not out of the question.

If you are looking to short T stock, wait for the shares to retest either their 50- or 200-day trendlines. Even positive news on the Time Warner front would have a hard time pushing T shares north of these moving averages at this point.

Until next time, good trading!

Joseph Hargett
Assistant Managing Editor, Banyan Hill Publishing

Editor’s Note: As a nuclear missile architect for the U.S. Air Force in the late ‘80s, Michael Carr wrote the computer code that made sure each missile would hit its target with 100% accuracy. He designed his trading strategy the same way, perfecting it over the last 10 years to provide a steady string of 100%-plus gains … in as little as two weeks. However, Michael’s Peak Velocity Trader research service will only be taking new subscribers until tonight at midnight EDT, so click here to check it out right away.

  • mona cooper

    I heard they do not treat there workers very well. A happy worker will make a company grow. There is nothing better than good customer realtionship weather you are a tech or customer service.

  • carl

    With the way the NFL players have been behaving and the racist commentators on ESPN I think your going to see an acceleration of “cord cutting”

  • Mark Wilson

    AT&T has seemed to be it’s own worst enemy. Just trying to read their billings on service takes an attorney and a cpa. Simplicity and customer focus appears to be a limited priority. Hopefully leadership will lose their blinders or they will become a story in history.

  • cyborg_trader

    Cut the cord years ago with Time Warner, now Spectrum. Used the savings to max out internet speed. Verizon is the best when it comes to wireless service. When I’m in the country with family, they always ask me for my phone to stream something or bring up a webpage, because their wireless service has no connection. I have a home in NY as well as NC, Verizon FIOS is a monster, I miss it when I’m in NC. AT&T do offer DSL service here…LOL.. They have lost their way, so it’s not long before they will be trading in the teens.

  • Neil Guerrero

    After careful consideration, and 36 years with the behemoth At&t, I think I can comment on their disdain for their own employees. Some of the comments such as they are their own worst enemy, and a happy worker will help a company grow, I think these are more on target than most people can actually know. I watched as the company stumbled from one disaster, to another while always denying that the technological advances would be short lived and then find themselves time and again playing catch up after being proven wrong. From the internet to pay tv and now wireless I just could not understand upper managements blunders and wonder how in the world they could possibly stay relevant in a fast changing environment such as telecommunications? Then it dawned on me that the company had a vast arsenal of attorneys and business marketers as well as an endless supply of money, that they could simply spend their way out of obvious mistakes that would have crippled lesser corporations. Throwing money at a problem seemed to work a majority of the time to catch up and pass the competition, but it would not sit well with some of us who knew sooner rather than later it would have to fall apart. Losing customers was a way of life for many employees because we would have to explain to customers how the company cared about their issues with att while knowing all the while that they could care less. Cutting the cord is just the another example on how the company gets it wrong again.

  • bak2reeves

    I can guarantee that will NOT be a step that company would imagine taking. If they did, they would find moral value and resolve issues with All their customers. As long as AT&T can charge (literally), $25 a month extra for a phone AND $10 a month for a “FREE iPad” as a promotional, without that money being printed on the bill, and get away with that scheme month-after-month; Their profits alone in this type of Dirty-Laundry could buy them top-notch attorneys who could spend years in court for them, and not lose any sleep.
    I spent four of my six months of business with AT&T, on the phone with three top-position reps: CEO/Randall Stevenson, President of Operations, and Board member, William Kennard. I emailed an itemized, line-by-line report of two bills in which I pointed out their company overcharging strategies that hinder (not help), the hundreds of thousands of customers.
    Unfortunately, this company’s business strategy has not changed. Which is why when I look at my T-Mobile bill now, at least I know what each line charge is, and there is nothing in addition I cannot see.