When reached for comment by CNBC, a spokesperson for AT&T pointed to an earlier comment by CEO Randall Stephenson from Wednesday saying he was confident in the third quarter results and emphasizing the need to stabilize EBITDA in the company’s broadband and TV business and in Mexico
The DirecTV deal set AT&T on a media and advertising shopping spree, earmarked by the Time Warner deal but scattered with smaller, similar deals along the way. The company is now saddled with $250 billion in debt and a steep road to sustainable media profits.
WarnerMedia accounted for nearly all of AT&T’s year-over-year revenue growth for the most recent quarter — the first full quarter since the deal closed in June. DirecTV provided a similar initial revenue bump when that deal closed in July of 2015.
Revenue from AT&T’s legacy businesses — adjusted to discount revenue attributable to either DirecTV or Time Warner — consistently posts much more modest gains, or even year-over-year declines.
That’s partly because AT&T subsidizes its legacy businesses in an effort to drive conversions to its wireless and streaming services, Moffett said.
“There were a lot of people who thought AT&T was the visionary and that they were making visionary bets on the media ecosystem at a time when Verizon was caught in quicksand,” Moffett said. “Two years later, Verizon looks to have been the far more prudent of the two.”
AT&T plans to continue with its media bets. It announced this month that it will launch a streaming service to rival Netflix in late 2019. That streaming service will include HBO shows, plus other shows from the rest of WarnerMedia.
AT&T is trading into correction territory on the year, but Verizon is up almost 10 percent in the same period. Practically every major Wall Street analyst has a Sell or Hold rating on the stock, including MoffettNathanson.
Moffett said the company will ease off its aggressive media and advertising strategy in lieu of cash to satisfy the bond market.
“With leverage roughly four times EBITDA, the needs of the bond market must now take priority over the needs of the equity market,” the analyst said in a note published Wednesday. “This simple statement of priorities is particularly useful given the mind-numbing complexity that comes with the inclusion of Time Warner, and with AT&T’s third segment reshuffling in as many years. Prioritizing the bond market means delivering cash flow… even if that means sacrificing growth.”