Thoughts on AT&T Analyst and Investor Day 2021: Jeff Kagan

Image source: AT&T Analyst and Investor Day presentation, March 12, 2021

Last week I attended the AT&T Analyst and Investor Day 2021, and this week I joined a company call with a few key Industry Analysts. Let me share some thoughts about this briefing with you. This was important for a variety of reasons. Analysts, investors, business customers and consumers need to understand where AT&T is today and the direction it is heading.

First, I remain convinced that AT&T’s aggressive expansion plans are on the right track. Management has taken AT&T to where it is today, an expanded company. Even through COVID-19. There are both strong and weak areas that need to be understood, however, so let’s dig into the details.

AT&T is wireless, wire line, fiber, news and entertainment

Decades ago, AT&T came from the world of baby bells and long-distance giants. Today, the company is a full-service provider of wireless, fiber, news, entertainment and more. Being a leader in all these areas is what gives AT&T a competitive advantage. All these networks and services work together.

Over the last few decades, AT&T has put itself on a rapid growth track of transformation, which has been very impressive.

That being said, transforming a company over and over in a changing industry can be a bumpy road full of ups and downs. And that is what AT&T is experiencing today.

In the long run, this bumpy road can be a small price to pay. but it must still manage to get through the bumps.

AT&T has changed many times in recent decades

Over the decades, AT&T has changed many times. It started out as a telecom company offering local and long distance. Then it expanded into wireless and the Internet.

During the last decade it has been expanding further into pay TV through U-verse, DirecTV and now AT&T TV.

Today AT&T is expanding even further into news and entertainment with WarnerMedia, which owns Warner Brothers, HBO, HBO Max, CNN and more.

Each of these moves has been a seismic shift in the growth patterns of the company and, in fact, has ultimately changed and expanded the entire industry.

That’s what is happening again today.

AT&T is a leader in wireless, fiber, Internet, entertainment, news

AT&T is a leader in wireless, fiber, Internet, news and entertainment and more. That being said, only some of its moves have developed into long-lasting growth sectors. Those that do, enable the company continue to grow and to change. Those that do not, ultimately fade away over time.

One example is, after spending the last decade building its pay TV arm, AT&T is now separating DirecTV, AT&T TV and U-verse from the rest of the company.

This is done for Wall Street. It will enable these services to continue, separate from the rest of the company, leaving the growth sectors to continue to thrive.

This should help AT&T not only to improve its performance from an investor perspective through its successful growth businesses of wireless, fiber, Internet and WarnerMedia, but also to put several billion dollars back into its balance sheet as well.

This will be helpful to making the ongoing payments incurred during the recent acquisition of Time Warner assets.

AT&T WarnerMedia and Comcast NBC Universal are changing the industry

AT&T is not the only company expanding like this. Verizon, T-Mobile, CenturyLink and others are not heading in the same direction. They are staying in their lanes.

Comcast acquired NBC Universal, however, and is heading in the same direction. This means two, very large players in their sectors are growing beyond their traditional walls and expanding their horizons.

They are not only expanding their own companies, but ultimately the entire industry. And while cable TV and telephone were never competitors in the past, today they are.

COVID-19 impacted AT&T growth in 2020

In 2020, COVID-19 threw the brakes onto AT&T's expansion plans. Because of this, the company has spent the last year bailing water and trying to rearrange its businesses so it can not just survive but continue investing in its future and emerge a leader going forward.

The coronavirus has not negatively impacted everything. Wireless, telecom, fiber, Internet, news and entertainment are still strong and growing.

The virus has impacted AT&T's Warner Brothers division, however, and movie theaters with reduced capacity have also impacted the release of new movies.

WarnerMedia releasing new movies on HBO Max and in theaters

In response, Warner Brothers is releasing new movies both in theaters and on HBO Max simultaneously. This new idea seems to be working and lets it continue moving forward in new and different ways.

This was a different kind of thinking. Something other studios could follow.

Long-term, I see the path that AT&T is on remaining strong and transformational, for the company and for the entire industry.

AT&T Mobility in third place after Verizon Wireless and T-Mobile

In the short term, however, AT&T is experiencing some challenges.

AT&T Mobility has fallen to third place behind Verizon Wireless and T-Mobile after T-Mobile acquired Sprint.

Verizon and AT&T were always the top two players. T-Mobile and Sprint were always the bottom two.

T-Mobile has shown strong growth in recent years. The acquisition of Sprint gave it lots of spectrum and put the combined entity ahead of AT&T Mobility.

AT&T Mobility wireless business is strong and stable. It has high quality, fast 5G speeds and has its eye on the future.

That being said, while it is strong, it is no longer a fast-growing part of the overall business.

AT&T faces cash flow issues due to WarnerMedia

Another problem is cash flow. The acquisitions in recent years, including the most recent of Time Warner (which became WarnerMedia), gives AT&T new avenues for growth going forward, but the path to get there is eating up cash.

Spinning off DirecTV, AT&T TV and U-verse gives AT&T billions of dollars, which should be helpful.

In fact, it will also give billions of dollars back to AT&T and will help with cash flow.

This cash flow crunch is causing a potentially serious problem. The company is cutting all of its expenses to the bone and, for a company the size and scope of AT&T, with all of the complex businesses it is in, it has become a very complicated company to understand.

That’s why cutting expenses so severely and dramatically may sound good, but will create its own new, unique challenges.

AT&T should use a scalpel to cut costs carefully, not clear cutting

AT&T should cut costs with a scalpel like a surgeon, not like a butcher. The results of these different approaches are very different.

The AT&T Analyst and Investor Day 2021 was good for many reasons. It clarified AT&T’s position in the industry. It discussed the company's transformation going forward. It opened our eyes and helped us put everything in order.

It reminded us that the direction the company is heading is still solid. And while that reassurance is good to hear, the company still faces several short-term challenges with which it must deal.

AT&T must stay on the growing side of Growth Wave

Staying on the growing side of the Growth Wave is the only real option AT&T has. Its WarnerMedia plan can help recapture growth once again, and it needs to improve wireless performance.

That means the company must stay on the growing side at all costs.

AT&T has always been a strong and growing company. It has always taken a different path from competitors like Verizon and T-Mobile. The path AT&T takes creates new avenues for growth. This has typically done well for the company in the past.

This path is not new for this company. Remember around fifteen years ago when SBC acquired AT&T, BellSouth and Cingular. That was a big gamble at the time, but it paid off in the end.

Back then it took several years to accomplish, and there was no COVID-19 to navigate, but this is who AT&T is.

Will it pay off this time? Will AT&T continue to be a leader going forward? I like its history and its growth plans.

Now, it just needs to make these plans reality. I have learned not to doubt this company and its executive team.

So, let’s keep our eyes on AT&T going forward. Let’s hope it takes great care and sensitivity with its cost cutting, and let’s hope the company's growth plans actually do succeed.

Jeff Kagan is an Equities News columnist. Kagan is a Wireless Analyst, Technology Analyst and Commentator who follows Telecom, Pay TV, Cloud, AI, IoT, Tele Health, Healthcare, Automotive, Self-Driving cars and more. Email him at [email protected]. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan and LinkedIn www.linkedin.com/in/jeff-kagan/

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Equities Columnist: Jeff Kagan

Source: Equities News