AT&T Earnings Show Continued Wireless Momentum During Q2

AT&T (T) posted solid telecom results for the second quarter, keeping the firm on pace to meet or exceed management’s 2022 subscriber growth expectations. The continued growth in wireless additions led to an increase in the mobility services revenue growth target to 4%-5% from “at least 3%.” However, management cut its free cash flow target for 2022 by $2 billion to $14 billion due to continued growth investments and the timing of collections. Our fair value estimate, which reflects the Warner spinoff, remains $25 per share. We continue to like AT&T’s strategic position and its network investment plans, which we expect will deliver improving revenue and profit growth over the next several years.

Adjusted for the Warner spinoff, DirecTV transaction, and Latin American asset sale, total revenue (now roughly two thirds wireless, with most of the remainder enterprise and consumer fixed-line services) increased 2.2% year over year to $29.6 billion. Wireless service revenue growth accelerated to 4.8% year over year, ahead of management’s previous 2022 target and in line with the new one, on strong postpaid phone customer growth in recent quarters. AT&T added 813,000 postpaid phone customers during the quarter, up from 798,000 a year ago, the strongest second quarter in a decade. Despite more than two years of blistering industrywide growth, we still believe that postpaid customer additions will eventually have to tick down and match population growth more closely, but AT&T has yet to see any sign of falling demand.

Average revenue per postpaid phone customer was also strong, growing 1.1% versus a year ago as promotional credits, which are amortized against revenue, declined in the quarter and more customers traded up to higher-priced unlimited plans. Management expects average revenue per postpaid phone customer to improve further in the second half. Segment EBITDA expanded by 2.5% year over year, with further expansion projected in the second half of 2022.