AT&T Inc. share price down, announces lower-than-expected Q3 revenue and trims full-year forecast

October 23, 2014 12:09 pm

AT&T Inc. reported an increase in revenue, but still under Wall Street’s expectations, while cutting sales projections for the year.

The company reported sales during Q3 increased to $32.96 billion, compared to analysts’ estimate of $33.21 billion. Net income fell from $3.81 billion last year, or $0.72 per share, to $3 billion, or $0.58 per share. Excluding integration expenses, debt-redemption costs and other items, earnings fell to 63 cents from 66 cents.

The telecom giant reported less-than-expected sign-ups for its no-contract Next wireless plan, which requires customers to pay full price for a new device or bring one of their own. Generally AT&T has lowered the monthly service fee for consumers without a contract.

The second-largest US wireless carrier was also surprised by the 400 000 people who brought their own devices, instead of purchasing new ones, when signing up for the plan.

“The value in our customer relationships is in providing good service to the network. The phones themselves are not profitable pieces of business,” Chief Financial Officer John Stephens told Reuters in an interview. “The issue many people don’t understand is that while we don’t have the equipment revenue, we also don’t have the equipment expense.”

The option that AT&T provides to customers allowing them to bring their own devices has worried analysts and many have said that the program may lead to a decrease in customer loyalty and slower sales.

“People look at this and say, ‘Oh, I can do with my phone a little bit longer,” said Roger Entner, analyst at Recon Analytics in Boston. “It will depress demand for new handsets and puts all the devices in the market longer, which slows down the whole innovation process.”

AT&T said 3.4 million people subscribed or upgraded to the no-contract Next plan and the company sold half of its smartphones without subsidies in the third quarter. The board said that they expect the shift away from subsidies to improve margins eventually. Wireless margin increased to 43.1% in Q3.

The company lowered its revenue expectations to an increase of between 3% to 4% this year, compared to its previous forecast for a 5% gain.

AT&T Inc. lost 0.35% on Wednesday and closed at $34.50 in New York, marking a one-year decrease of 2.07%. The company is valued at $178.92 billion. According to the Financial Times, the 22 analysts offering 12-month price targets for AT&T Inc. have a median target of $36.00, with a high estimate of $42.00 and a low estimate of $25.00. The median estimate represents a 4.35% increase from the last price of $34.50.

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