23 April 2021

AT&T Shares Climb on Blowout Quarter

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What’s happening: Shares of AT&T spiked on Thursday, after the telecom giant reported upbeat sales and earnings for the first quarter.

What happened: Sales of AT&T’s smartphones were boosted by the reopening of the US economy and various initiatives taken by the company.

Investors focused on AT&T’s wireless subscriber growth and net subscriber additions for HBO Max. In both services, the company gained customers at the cost of their closest rivals, Verizon Communications and Netflix.

How were the results: AT&T reported growth in sales and earnings, with both metrics surpassing Street expectations.

  • Consolidated revenues grew 2.7% year-over-year to $43.9 billion, exceeding market views of $42.69 billion.
  • Adjusted earnings climbed 2.4% to 86 cents per share, beating the consensus projection of 78 cents per share.

Why it matters: AT&T’s growth in the first quarter was driven by improving mobility revenues, mostly from equipment sales and higher WarnerMedia revenues. Communication revenues grew 5.2% year-over-year to $28.2 billion, while WarnerMedia revenues surged 9.8% to $8.5 billion.

The company’s stellar performance in the first quarter included the net addition of 595,000 wireless phone subscribers, which was almost double the number projected by analysts. Meanwhile, Verizon Communications reported it lost 178,000 wireless phone subscribers in the first quarter, versus expectations of 121,700.

AT&T also added 235,000 fibre internet customers in the first quarter, with people continuing to work remotely amid the covid-19 pandemic.

AT&T’s decision to release all its 2021 films simultaneously on its streaming platform and at the theatres resulted in the addition of 2.7 million subscribers for HBO and HBO Max. Streaming rival Netflix recently reported the addition of merely 450,000 new paid subscribers in the US and Canada in the latest quarter.

There are around 63.9 million global subscribers for HBO and HBO Max, versus more than 100 million for Disney+ and over 207 million for Netflix.

AT&T also said it had generated more than $300 million globally from its theatre release of "Godzilla vs. Kong."

AT&T has also been making huge investments in its 5G networks, which includes offering free subscription of its HBO Max streaming service with certain phone plans, in a bid to retain customers.

Management guided to 1% growth in consolidated revenues for fiscal 2021 and expects earnings to come in close to the fiscal 2020 figure.

How shares responded: AT&T’s shares jumped 4.2% to close at $31.36 on Thursday, after the company released strong quarterly results. The stock has gained more than 8% in the past three months.

What to watch: Investors will keep an eye on AT&T subscriber additions, with the company gearing up to launch an economical version of its HBO Max service in June.

The Markets Today

     

US stocks will be in focus today ahead of a basket of economic reports from the country.

Context: Wall Street ended lower on Thursday, following a report suggesting President Joe Biden will propose higher taxes for wealthy individuals.

Details: Investors grew concerned on reports of Biden considering almost doubling capital gains tax for wealthy Americans. The reports said his proposal could call for a capital gains tax rate of 39.6% for people earning $1 million or higher.

Growth stocks came under selling pressure, with shares of Amazon and Tesla leading the losses on Thursday. Before the reports hit the market, US indices were trading mostly higher, supported by the release of upbeat corporate earnings and economic data.

Markets particularly cheered the better-than-expected jobless claims data. The US Labor Department reported a decline in initial jobless claims to 547,000 last week, versus the consensus estimate of 603,000.

Most companies have exceeded market expectations so far in this earnings season. Dow, D.R. Horton and Southwest Airlines also reported stronger-than-expected earnings on Thursday.

“The streak of strong positive EPS surprises is likely to continue, but elevated valuations have now become pervasive; sentiment is too optimistic; and a potential change in corporate taxation is an overhang,” Barclays analyst Maneesh Deshpande said in a note.

The Dow Jones index tumbled 321 points to settle at 33,815.90 on Thursday, while the Nasdaq 100 shed 1.24%. The S&P 500 erased earlier gains and closed lower by 0.92% at 4,134.98.

What to watch: Markets await data on manufacturing PMI, services PMI, composite PMI, and new home sales from the US. The IHS Markit manufacturing PMI is expected to improve to 60.5 in April, from 59.1 in March, while services PMI is projected to rise to 61.9, from 60.4 in the previous month. Sales of new single-family homes, which fell 18.2% to an annual rate of 775,000 in February, are expected to rise 12% in March.

Rising covid-19 cases remain one of the top concerns for markets, with infections surging past 31.9 million in the US.

Other Markets: European trading indices closed higher on Thursday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.62%, 0.82%, 0.91% and 0.68%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

UK’s retail sales, public sector net borrowing, services PMI, manufacturing PMI and composite PMI, France’s manufacturing PMI, services PMI and composite PMI, Germany’s services PMI manufacturing PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI and composite PMI, Russia’s corporate profits and Bank of Russia’s interest rate decision, Mexico’s retail sales, India’s value of loans, value of deposits and foreign exchange reserves, Canada’s wholesale sales as well as the US Baker Hughes crude oil rigs.

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