Wells Fargo 'not expecting surprises' from AT&T in Q3

Source: Flickr user Mike Mozart

Wells Fargo Securities lowered its estimates for AT&T a tad, noting that the carrier continues to sacrifice some postpaid subscribers to protect its high-end user base in advance of the coming rollout of DirecTV Now.

Jennifer Fritzsche and her colleagues predicted AT&T will see $163.9 billion in revenue during fiscal year 2016, down from a previous estimate of $167.7 billion, and the firm lowered estimates for earnings per share for the year by one penny to $2.86. Third-quarter earnings per share were also lowered by one cent to 73 cents primarily due to “below the line changes” of interest expense and taxes.

“Our checks show AT&T was in a protecting its base mode during the quarter and continued to be focused on retaining the high end postpay users and adding more profitable prepay subs,” Fritzsche wrote in a research note distributed to investors this morning. “As a result, we expect postpay phone losses to be -200K (vs. our prior estimate of -175K). We are increasing our prepay estimate from 225K to 300K.”

Wells Fargo also predicted AT&T will post wireless revenue of $18.2 billion, with service revenue coming in at roughly $15 billion and equipment revenue coming in at $3.2 billion. The carrier will see an upgrade rate of only 5 percent during the quarter, Fritzsche wrote, although the recent release of the iPhone 7 should lift that figure in the fourth quarter.

AT&T lost 180,000 net postpaid phone users in the second quarter, marking the seventh consecutive quarterly loss in that market. The figure was actually an improvement, though, as the operator lost 276,000 such users during the year-prior period and 363,000 in the first quarter of 2016. The company reported an overall profit of $3.41 billion, however, up from $3.08 billion during the prior year.

AT&T is expecting a particularly active quarter as competition heats up headed into the holiday season. The carrier plans to roll out DirecTV Now later this year, offering more than 100 channels at a “very aggressive price point,” CEO Randall Stephenson said recently.

Like its rival Verizon, AT&T is betting heavily that it can expand beyond its core wireless business to create a digital entertainment and advertising empire. The nation’s two largest carriers will be watching each other carefully to see what works and what doesn’t in the world of mobile media.

“Bottom line: We do not expect many surprises this quarter from AT&T,” Fritzsche wrote. “The real focus for us is on Q4 and early 2017 when we expect its integrated (wireless/OTT) approach to launch into primetime.”

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