Q1 Wireless Gains Can't Help AT&T Chase Down Verizon
The company that introduced the iPhone to the U.S. market sold a record 6 million smartphones in Q1, and there was more good earnings news in tablet sales and wireless data for AT&T. However, the company couldn't match the kind of subscriber growth that Verizon saw in its last earnings call. The result was a revenue miss, and now the market looks to see whether AT&T can build out its wireless data business for other markets, such as automobiles.
AT&T slightly missed analyst expectations on its first quarter earnings report this week, despite solid growth on the wireless data side of the business and record smartphone sales.
The company reported net income of US$3.7 billion, a slight increase from the $3.6 billion it reported a year earlier. At $31.34 billion, revenues were down 1.4 percent from the previous year.
AT&T's quarter was especially helped by the consumers that continue to turn to their smartphones and tablets for their connectivity needs. The company's wireless data revenues were up 21 percent from the same time a year earlier, with overall total wireless revenues also up 3.4 percent compared to a year ago.
Many of those wireless customers were new ones. AT&T added 296,000 wireless postpaid customers and 1.2 million new smartphone subscribers. Smartphones accounted for 88 percent of AT&T's postpaid phone sales. The company said it sold 6 million smartphones during the quarter.
To get a more detailed picture regarding AT&T's new customers, it's important to consider another big data-eater -- tablet computers, said Jonathan Chaplin, director of equity research at Credit Suisse.
"Net adds of 296,000 were above our estimate. However, stripping out the 365,000 in tablet adds reveals that phone net adds were negative," he told the E-Commerce Times. "AT&T attributed the anemic postpaid phone net adds to lower promotional activity. We expect net adds to remain flat sequentially as these trends continue."
AT&T did not respond to our request for further details.
Taking on the Competition
AT&T stock took a hit in after-hours trading Tuesday and continued to trade down to about $36.80 per share going into Wednesday afternoon.
"We remain cautious on AT&T, given unsurprising operating trends and a high valuation," Chaplin said.
Adding to the caution with AT&T is the company's ongoing battle with Verizon for the top spot in the wireless market. AT&T is showing it can outcompete T-Mobile and Sprint, but it hasn't been able to win against the nation's largest provider.
With the market becoming more saturated, well-established companies like AT&T must switch focus with their strategy, said Jeff Kagan, tech analyst and consultant. AT&T is doing a decent job of converting its longtime consumers to more lucrative smartphones and tablets, while its competitors might still be simply trying to draw as many customers as possible.
"AT&T was the first company that started the trek into the smartphone world," he told the E-Commerce Times. "Years later Verizon joined in. So if AT&T is years ahead of Verizon, it makes sense that their customer base would mature more quickly. The wireless industry is a rapidly growing place that changes regularly. That means over the next few years Verizon will look similar to AT&T today."
That market change means AT&T can focus on leveraging market changes such as LTE and other wireless opportunities that are just beginning to emerge in industries such as retail, healthcare and automotive, said Kagan.
"Wireless is not just about wireless any longer," he noted. "We see AT&T expanding into other areas. Growth in wireless will come from helping other industries transform and use wireless to grow, such as automotive, where the Internet is in the dashboard."
It's important to keep long-term growth possibilities in mind when considering AT&T's place in an evolving market.
"I don't see any real problem here," Kagan said. "This is the way the industry has always grown and changed. Industry after industry needs wireless, and that will be one significant and new growth engine for the industry going forward. This is something that AT&T has clearly in their focus."