Revenues from AT&T, Verizon and T-Mobile are coming. What to watch.

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Telecom stocks have outperformed the market since the start of the year. Above, a wireless tower.

The time of dreams

Telecom stocks have had a tear in 2022. The next set of earnings reports from the sector should offer clues as to whether the streak continues. Subscriber additions and revenue will be focus points for investors.


AT&T

(symbol: T),


Verizon

Communications (VZ), and


T-Mobile

The United States (TMUS) will publish its first quarter results from Thursday. Telecom giants are pushing their next-generation 5G services and investing in new broadband networks, promising faster growth in the years to come.

Telecoms stocks have lagged the market over the past year, but have outperformed so far in 2022. Relatively cheap valuations and defensive corporate business models have become more attractive as interest rates are rising and concerns are growing about slowing economic growth. T-Mobile is up 15% year-to-date, AT&T has returned 8.5% including dividends, and Verizon has returned 6%. This compares to a loss of 7.5% for the


S&P500

This year.

It should be a good quarter for the industry as a whole. The possibility that subscriber growth will slow significantly, forcing companies to offer discounts – a concern late last year – now looks unlikely to be an issue for at least a few quarters.

“This quarter will be important in bolstering confidence in the wireless industry,” wrote David Barden of BofA Securities in a recent report. “There is a growing awareness that strong fundamentals such as low unemployment, a robust economy and record company formations will continue to support near-term growth.”

What to watch at AT&T: AT&T releases its first quarter results Thursday morning before the market opens. The company is expected to report net income of $4.5 billion, or 61 cents per share after adjusting for one-time factors, on revenue of $38.2 billion. On average, analysts expect adjusted earnings before interest, taxes, depreciation and amortization — or Ebitda — of $11.9 billion and free cash flow of $5.2 billion.

All of these figures include


Warner Media
,

that AT&T created just after the end of the first quarter. As a result, the focus will be more on AT&T’s communications segment during the period, which is essentially the post-spin-off company. Revenue there is expected to be $28.2 billion, roughly flat year-over-year, and Adjusted EBITDA is expected to be $11.8 billion, up 3%.

The Wall Street consensus is for postpaid net adds — a very important metric for wireless companies — of around 573,000. That would compare to an average of 1.1 million postpaid net adds per quarter in 2021, which was a banner year for customer growth in the US wireless industry.

AT&T has recently focused on customer retention in its promotions, offering generous device subsidies and upgrade offers to new and existing customers. Investors will want to see that reflected in his Thursday subscriber count. They will also monitor any impact on AT&T’s average revenue per user, or ARPU. That’s expected to be around $53 for postpaid phones in Q1, which would be down 2% year-over-year.

Beyond 5G wireless, AT&T’s other major goal, which specializes solely in telecommunications, is to expand its fiber-optic broadband network. Net additions are expected to be around 288,000.

Key points for Verizon: Verizon is next, reporting Friday morning. Analysts expect earnings of $1.34 per share, which would be up 3 cents from the first quarter of last year. Adjusted EBITDA and net income are expected to reach $12.2 billion and $5.7 billion, respectively. Wall Street expects revenue of $33.7 billion, up about 2%.

Verizon has been less promotional than its competitors, instead focusing on increasing revenue by increasing average revenue per account, or ARPA. This means upgrading subscribers to more expensive plans and selling them more services. Analysts predict a net loss of nearly 50,000 postpaid wireless subscribers on average, but Wall Street sees postpaid ARPA rise 12% year-over-year to $135.40. Verizon management has previously said it expects faster quarterly growth in subscribers to fixed wireless access, or FWA, essentially home broadband delivered over a 5G network.

I look at T-Mobile. T-Mobile, a company that tends to offer conservative forecasts and increase them as the year progresses, reports on April 27 before the market opens. Given this approach, so-called beat and raise quarters are almost the rule.

After two years of integrating Sprint’s operations, network and customer base, 2022 should be the year the merger begins to pay off for T-Mobile. Associated costs should start to decrease and free cash flow should increase. Management has hinted at the possibility of significant share buybacks in the coming years, so investors will be eager for news on that.

For the first three months of 2022, analysts forecast 44 cents in earnings per share on $20.2 billion in revenue. Ebitda and net profit are expected to reach $6.8 billion and $278 million, respectively.

Wall Street expects T-Mobile to add 1.1 million net postpaid subscribers in the quarter and postpaid phone ARPU to hold roughly flat at $47.70. T-Mobile said Wednesday it reached 1 million FWA subscribers earlier this month, up from 646,000 at the end of 2021.

Write to Nicholas Jasinski at [email protected]

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