AT&T Inc. - Stocks

Instrument description

One of the major forces that has allowed people from all over the world to get connected and close the communication gap is ‘telecommunication.’ Traditionally phones were wired, big, and bulky, and only domestic calls were cheap, whereas international calls were expensive. But the advancement in telecommunications resulted in wireless communication, phones getting smarter and portable, and communication made accessible through various online applications.

American Telephone and Telegraph Company, famously known as ‘AT&T,’ is a US multinational company that excels in the telecommunication sector. AT&T Inc. is a holding company that is probably one of the oldest communication company that now also provides digital entertainment services in the US and other parts of the world.

AT&T is considered as the largest supplier of Pay-Tv, and the company manages a broad Internet Protocol (IP) network that connects six continents. The head office of AT&T is located in Dallas, Texas, and has over 246,000 employees. The shares of AT&T are listed and actively traded on the New York Stock Exchange (NYSE).

In 2016, AT&T was named as the 17th largest telecommunication company in the world. AT&T has many divisions such as AT&T Wireless Services, AT&T Prepaid, Warner Media, DirecTV, AT&T Labs, AT&T Digital Life, and many others. AT&T Labs does innovative development and advance research that earned the company 8 Nobel prizes.

History of AT&T

The modern-day AT&T Inc. was formed in 1983 and is a global leader in telecommunications and digital entertainment services. The company traces its roots back to the benchmark invention of the telephone in the early 19th century by Alexander Graham Bell. The American Telephone & Telegraph (ATT) was first incorporated in 1885, but a series of lawsuits and misfortunes led to several divisions and divestitures from which one is AT&T Inc., which is still a big conglomerate.

The first coin-operated phone was launched in Hartford, Connecticut, in 1889, and in 1908, the company reduced its prices to get a big share of the telephone market. ATT ventured into the commercial radio business in 1922, and in 1947, the microwave radio laid down the foundation for long-distance telephone calls.

The year 1962, was an important year for ATT as the company launched its satellite named ‘Telstar’ in orbit. The year 1983 was a year of division as the company divided to form several companies such as independent and domestic telephone companies. AT&T was incorporated in 1983 and focused on entering the non-telecommunication business.

In 1984, AT&T was further divided into two divisions that were AT&T Technologies and AT&T Communications. AT&T acquired computer maker NCR for $7.4 billion in 1991. AT&T entered the cellular business through the acquisition of McCaw Cellular Communications for $12.8 billion.

In 1995, the company broke into three companies AT&T Corporation, NCR Corporation, and Lucent Technologies. In 1999, AT&T went big and bought Tele-Communications Inc. for $53.5 billion. Also, in 1999, AT&T became the country’s largest cable television operator by overcoming rivals Microsoft and Comcast to acquire MediaOne Inc. However, in 2001, Comcast bought AT&T Broadband for $72 billion, and in 2004, AT&T Wireless is sold to Cingular Wireless for $41 billion.

On July 19, 1984, AT&T went public just after the first year of business. The Initial Public Offering (IPO) was traded on NYSE. The split-adjusted IPO was set at $1.25, and in its trading history, there have been three occasions that the stock has split. The first split was 3 for 1 on May 22, 1987. The second split was 2 for 1 on May 25, 1993. The third split occurred on March 19, 1998, and was 2 for 1.

AT&T stocks have performed tremendously well in the 90s, and the share price rose to $60 in July 1999, but the first decline came in November 2000 due to the restructuring of telecommunication due to the advent of the internet. The share price of AT&T reached $20 in May 2003, but in the following years until today, AT&T has grown and performed excellently. In November 2018, AT&T had a market capitalization of $217 billion, and its share price was $30.

The parent company ATT has seen many divisions, mergers, acquisitions over the years, and the current AT&T consist of 10 of the original 22 companies that were under Bell Operating Companies.

Current Business and Investment of AT&T

AT&T is a global name in the communication industry that provides its products and services all across the USA, Mexico, South America, and the rest of the world. The company functions in four broad segments that are

1. Business Solutions

The Business Solutions division is involved in offering a wide range of communication services to consumers that include IP-based Networking solutions, Broadband internet, Data and Voice solutions, App-based routing, and Strategic Services.

2. Entertainment Group

The Entertainment section covers digital services such as the internet, video-on-demand service, voice communication, and interactive and focused advertising services to consumers in the US.

3. Consumer Mobility

Consumer Mobility from the name suggests that it offers easy and seamless mobile communication to consumers. AT&T offers three in one services that is also called ‘Triple Play’ and includes (Voice, Video, and High-speed internet connectivity) services to consumers and also to resale and wireless subscribers in the US.
The International segment is responsible for managing the distribution of entertainment services to the South American region and wireless services in Mexico.

Of all the divisions, the Consumer Mobility segment is the best performing segment for the company in recent years and accounts for more than 40% of AT&T annual revenue. The services and products that AT&T provides include

• Wireless communication and telephony
• Internet, and Data/Broadband Services
• Digital Video Services
• Telecommunication Equipment
• Managed Networking
• Wholesale Services

AT&T has actively participated in feasible mergers and acquisitions for growth purposes. The company bought Nextel Mexico and Lusacell in 2015 and combined the two to form AT&T Mexico. Also, in 2015, a deal worth $48.5 billion allowed AT&T to acquire DirecTV and subsequently make AT&T the world’s largest provider of Pay TV services.

But the most notable merger of AT&T was on October 22, 2016, when the company merged with giant Time Warner for a whopping $85.4 billion. The merger was confirmed two years later on June 12, 2018, and the deal allowed AT&T to become a media giant with control and management of popular media houses such as CNN (Cable News Network), HBO (Home Box Office), Warner Bros, and TNT (Turner Network Television).

AT&T owns and runs three regional TV sports network and also has interests in another regional sports network. AT&T has a separate network that manages game-related programming and Internet Interactive gaming platform.

Risk and Potential in AT&T Business Environment

AT&T is regarded as the largest provider of fixed and mobile telephony in the US. The company provides a wide range of telecommunication services, which includes Mobile connectivity, Wireless Internet and Broadband services, and digital entertainment and television services. SWOT analysis is a strategic tool that allows companies to benchmark their performance and see future growth prospects. The SWOT analysis of AT&T

• Strengths

AT&T is a global brand with over 250,000 employees. The company is giant in the telecom sector and offers multiple services and products to consumers. AT&T has a reach in nearly 200 countries and over 100 million customers. AT&T has done purposeful mergers and acquisitions in different segments of the market, such as digital media, sports channels, and sports arenas.

• Weaknesses

The telecom sector is quite competitive, and market share has to be shared with different telecom providers. AT&T is a large company but has a limited market share. A recent trend of cord-cutting or shift of consumers from cable boxes to digital media content is a cause of concern for AT&T. The growing Network security and censorship issues also affects the growth of the firm.

• Opportunities

AT&T has an opportunity to venture into emerging economies and diversify its services. AT&T can partner with Apple as the sales of iPhones and iPads are always increasing. The company can offer 4G and even upcoming 5G network capabilities to millions of users.

• Threats

The economic slowdown due to Coronavirus has badly affected the growth of AT&T. Government regulations and legal cases also hinder the performance of the company. AT&T faces challenge from rival brands, which includes Verizon Communications, Vodafone, Sprint Nextel, and Deutsche Telekom.

Stock Analysis of AT&T

AT&T is listed and actively trades on the NYSE with the ticker symbol ‘T. The company is listed under the ‘Telecommunication Services’ Sector, and the industry is ‘Wireless Telecommunication.’

AT&T has been paying a consistent dividend to its shareholders, and it also shows the financial health of the company. The steady cash flow attracts a large number of investors who also reinvest their profits to further magnify and compound their gains.

In 2019, the financial report of AT&T reported revenue of $181.2 billion, net income of $13.90 billion, and assets worth $551.7 billion. The valuation of AT&T is a result of its fixed income component. Since February 2020, the entire world and nearly all the business companies have been impacted by Coronavirus Pandemic, and growth has been affected.

For AT&T, the major factor influencing its performance is the shift of consumers from satellite television to digital streaming services such as Netflix. At the end of the first quarter in 2020, a staggering number of almost 1 million users have unsubscribed AT&T Prepaid Plans, and experts suggest that the number will further rise as most of the consumers are staying at home during Covid-19 outbreak. With the AT&T services, a user only has to watch what AT&T offers, whereas users are unsubscribing to watch anything they like on other digital media platforms.

The first-quarter reports showed a decline in revenue, earnings per share, and nearly $2 billion reduction in cash flow, which has prompted most investors deciding to leave investment in AT&T due to the upcoming dividend cut in the coming months.

However, the dividend yield sits at 7%, which is attractive for most investors, given that AT&T manages to maintain the current dividend for the rest of the year. The management of AT&T has said that the company has ample cash flow to equally balance the debt payments and handsome dividend coverage to shareholders.

The analysts are predicting annual earnings per share of AT&T to be $3.23 for 2020 and Earnings before Interests, Taxes, Depreciation, and Amortization (EBITDA) to be $56.25 billion. The estimate of 2020 shows a nearly 70% increase in earnings of the company. For the short term, AT&T shares might not be the best option today as the company is facing the loss of subscribers due to Coronavirus and shift by consumers to let go of their cable boxes and switching to other digital media services.

Once the lockdown restrictions are lifted, and businesses return to normal, then AT&T can expect to achieve its financial estimations. So AT&T shares may be a worthy investment.. One of the interesting ways for the short term can be trading using Contract for Difference (CFD) that allows you to not only trade on an underlying asset but trade both Long and Short positions. CFD trading due to leverage requires less funds than buying actual shares but it is type of investment with high risk.
The information above is for education purposes only and cannot be considered as investment advice. Past performance and forecasts are not reliable indicators of future results.