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AT&T now expects to have up to 150 million subscribers worldwide on HBO and HBO Max by 2025.
Gabby Jones / Bloomberg
AT&T management hosted an investor day Friday morning, following events from rivals
Verizon Communications
and
T-Mobile VS.
on Wednesdays and Thursdays. The highlight was a significantly increased HBO Max subscription target, with little other incremental news that would move the needle for a company the size of AT&T.
AT&T stock (ticker: T) rose 3.8% Friday morning to about $ 30.65 as the event went on. The company now expects to have between 120 million and 150 million subscribers to HBO Max and HBO by 2025. The previous forecast, given at the end of 2019, was 75 million to 90 million subscribers that year. At the end of 2020, the services together had 61 million subscribers worldwide.
Investors have been happy lately to value streaming companies based solely on the growth of their subscribers, it seems.
Netflix
(NFLX) stocks have long been primarily trading based on that figure after each quarterly earnings, while recent ambitious streaming subscribers have focused on
ViacomCBS
(VIAC) and Discovery (DISCA) have rocketed those stocks.
Growth at HBO Max will be accelerated by a new ad-supported tier – launching in June – and an expanded international rollout, WarnerMedia CEO Jason Kilar said Friday. He said the company would expand HBO Max to 60 markets in Latin America and Europe this year. By the end of 2021, AT&T expects to have between 67 million and 70 million HBO Max and HBO subscribers worldwide, which would be a growth from 6 million to 9 million this year.
AT&T still expects several years of heavy capital expenditures for HBO Max. It sees peak losses in 2022, with the service breaking even for the first time in 2025. HBO revenues will be about $ 15 billion that year, Kilar said, up from $ 6.8 billion last year.
That’s one of the top three investment areas that AT&T CEO John Stankey highlights to investors every time he gets the chance, along with laying fiber optic cables and upgrading his wireless network to 5G.
In his opening speech on Friday, Stankey summarized the pitch to investors as a focus on growing subscribers in AT & T’s media and communications businesses and a more streamlined business. “More customer relationships and a business that is more efficient and streamlined will result in shareholder returns,” said Stankey.
Jeff McElfresh, CEO of AT&T Communications, explained the company’s fiber-optic cable push in 2021. It plans to expand its fiber footprint to 3 million additional potential customers this year, a goal previously discussed by management for Friday.
Americans were more dependent than ever on their home internet connections during the Covid-19 pandemic, and broadband is a major growth area for the telecom industry. And people also want faster fiber optic connections to enable faster download and upload speeds than coaxial cables. McElfresh said on Friday that when the company first brings its fiber to a street or neighborhood, 70% of the subscribers it adds are new to AT&T and it sees a 10% increase in market share than local competitors.
The company expects mid-single digit growth in broadband sales in 2021 and rising profit margins. That makes sense: it is a high fixed cost company, with low marginal costs of adding a new customer. Profits should grow faster than sales as the business grows. Just look at
Comcast‘s
(CMCSA) or
Charter communication
(CHTR) broadband results from 2020.
AT&T spends more than $ 27 billion on C-Band spectrum, behind Verizon Communications’ (VZ) $ 53 billion and T-Mobile’s $ 11 billion. Management said Friday that the company will invest another $ 6 billion to $ 8 billion to deploy that new spectrum. AT&T has not changed its previously issued wireless guidelines for 2021: management continues to expect service revenue growth of approximately 2% with “modest” wireless earnings growth.
Overall, AT&T also continues to expect revenue growth of approximately 1% in 2021, and earnings per share will remain stable from 2020. Unlike Verizon and T-Mobile this week, AT&T offered no longer-term targets or guidance. the HBO Max figures.
After its investments in 5G, fiber, HBO Max, Stankey said AT & T’s priorities are to keep the stock’s dividend at its current level, with free cash flow after that payment to service the debt. This year, the company will increase its loans by $ 6 billion to fund its C-Band release. The DirecTV spin-off will bring in nearly $ 8 billion in cash, but also remove some of the Ebitda – earnings before interest, taxes, depreciation and amortization – from the income statement, effectively increasing AT & T’s leverage.
AT & T’s new CFO Pascal Desroches said Friday that he expects the company to end 2021 with a net debt-to-adjusted Ebitda ratio of 3.0 times. He expects to reduce this number to 2.5 times by the end of 2024. Meanwhile, more asset sales are on the table as stock buybacks have ended, AT&T said Friday.
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