A little over a month ago, we took a look at AT&T (NYSE:T), and discovered that the company that owns WarnerMedia and all the properties therein—including the DC superhero universe, animated or otherwise—may have some serious troubles competing with Disney (NYSE:DIS) and its Marvel Cinematic Universe properties. Recent updates, however, suggest that there could be more going on than just a titanic real-world version of Amalgam Comics in the making, and the news may not be good for AT&T.
DirecTV Heading DirecTo the Auction Block
One of the biggest new issues to emerge features AT&T property DirecTV, which, just five years ago, cost AT&T $49 billion to pick up. It may have looked like a solid deal, but at last report, AT&T was not only planning to sell the division off, but wasn't getting great offers for it. The best offers AT&T could get for DirecTV are said to be running in the $15 billion range, a massive discount.
While AT&T reportedly tried to play the event off as a very big deal—it only allowed certain potential investors into a second-round auction play—the potential buyers were quite clearly nonplussed. Yet AT&T still appears interested in going through with the play, a move that was sufficient to startle former AT&T executive. One of said executives noted that the move was a “serious destruction of value”, which, given the overall landscape, isn't a particularly flawed assessment.
Word from AT&T's “Video Connection” division, meanwhile, details a possible reason why the value has been so thoroughly ruined; the DirecTV division lost around 886,000 subscribers in the last quarter, and this in a time when home video has never been so valuable thanks to ongoing coronavirus responses.
That's Not All AT&T Is Dropping
AT&T's recent moves haven't been winning it a lot of friends with customers. AT&T, current owner of Cartoon Network, recently moved to drop the popular “Venture Brothers” series from its roster, a move which infuriated fans across the world. The move was said to be the result of high costs to produce the series, which, given that each season takes anywhere from two to four years to put together, isn't out of line.
Worse, AT&T's rural customers are likewise concerned. Back on October 1, the company officially announced it would no longer connect customers to DSL internet access. For rural dwellers, DSL—which has a close relationship with phone lines—is the closest thing they can get to high-speed internet access.
With so few businesses looking to bring high-speed internet to low population density areas, DSL was the only option, and now, it's out. Those who already have it will be “grandfathered” in, but with internet operations focusing on high population density areas, the countryside may continue to suffer from low speed access in a time when internet access has never been more vital to everyday life. This dovetails with an unusual report from the Communications Workers of America and the National Digital Inclusion Alliance which notes that AT&T has been setting up for fiber access in some “underserved” areas, but hasn't set up the necessary equipment to actually provide the access.
Cautious Optimism Ahead
All of this looks a little dire, and with good reason. Divesting a property at fire sale prices doesn't look like a recommendation, unless you consider it a cost-savings move in a dying field like cable television. The loss of DSL will impact the countryside, but low population density tends to mean low population anyway, so there's minimal impact to the company's bottom line.
AT&T has some cautious love right now from analysts; our latest research suggests the company is a “hold”, with four “sell” ratings in place along with 11 “hold” and 13 “buy”. The price target consensus is right around $33.68, which is a decent climb from yesterday's close of $28.71.
It would be easy to be concerned as AT&T seems to be scrambling to save money any way it can, but that's not exactly a bad sign, either. We know there's been quite a bit of trouble for cinematic properties lately thanks to the coronavirus responses, which are crippling theaters and putting a lot of attention on streaming video. It doesn't exactly help that customers are starting to watch their budgets more closely as well, putting DirecTV packages on the block. DirecTV's NFL Sunday Ticket program has likely taken some hits as well with the shutdown of football that's only recently started coming back.
The bottom line, a streamlined AT&T may be more likely to be a profitable AT&T, and that's a point that bears considering when contemplating becoming an investor herein.
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