America & # 39; s largest telecom operator, AT&T (NYSE :), is making investors guess its future. Following on from the Dallas, Texas-based company's extensive acquisition strategy over the past decade, the company is struggling to find its place in the post-pandemic world where it faces a variety of competitive threats.
AT & T & # 39; s wireless business dropped to No. 3 this year following T-Mobile (NASDAQ 🙂 acquisition of Sprint Corp. The company had just launched HBO Max, its bid to compete in a world rapidly transitioning to streaming video model, but that battleground has become more competitive after the massive success}} of Walt Disney Company's (NYSE 🙂 streaming offering.
As competition intensifies in both the wireless and entertainment segments, AT&T is left with massive debt and assets losing value. The Wall Street Journal reported last week that the telecom and media giant had received bids for its DirecTV unit, valuing the satellite TV service at more than $ 15 billion including debt. Compare that to AT & T & # 39; s purchase of DirecTV in 2015 for about $ 49 billion, or $ 66 billion including debt.
These problems, both structural and cyclical, penalize those who bought AT&T stock. Its shares have underperformed hugely over the past five years, losing 15% in the past 12 months alone.
AT&T Annual Review.
For investors who love the company's rich 7% dividend yield, it is difficult to decide if now is the right time to buy these shares, especially when the companies are under pressure and the future is uncertain .
Some Signs of a Turnaround
This year, AT&T saw its revenues shrink as the pandemic negatively impacted sales in both the wireless and ad departments. Revenue fell 9% and 5% in Q2 and 2020, respectively, as the company's Warner Media suffered from the lack of cinema releases and lower revenues from games and other revenue streams.
Despite this bleak picture, there are some signs that the company's turnaround efforts are gaining momentum as part of an agreement between the company and an activist investor, Elliott Management Corp., a hedge fund with a $ 3.2 billion stake in the company.
The company's efforts to get rid of the loss-making DirecTV unit are part of the restructuring plan being pushed by Elliott. Pay-TV business has lost millions of subscribers in recent years as viewers switch to on-demand entertainment services such as Netflix (NASDAQ :). AT & T's losses on pay-TV are much faster than the declines at rivals like Comcast (NASDAQ 🙂 and Dish Network (NASDAQ :).
The new AT&T Chief Executive, John Stankey, is willing to divest any company that diverts attention from the Dallas company's core wireless, broadband and video streaming devices, according to WSJ.
"We still have the opportunity to do a number of things around adjusting our portfolio," Stankey said last week on a {{0 | UBS Group Investor Conference
.
"We will keep forcing ourselves to look at those tough decisions."
In October, AT&T sold its stake in Central European Media Enterprises for $ 1.1 billion, in addition to the sale of office buildings and an interest in Disney & # 39; s streaming service Hulu. It also received nearly $ 2 billion from the sale of its Puerto Rico phone business earlier this month.
These transactions will help Stankey pay off his debts and save $ 6 billion in annual costs, in part by cutting thousands of jobs. But the big question is how long it will take for the giant to trim its asset base and get the company back on track for sustainable growth, especially in the lucrative streaming business where AT&T has just started.
Bottom Line
Despite AT & T's juicy yields and good track record of dividend payments, investors should trade these stocks carefully. The launch of the company's streaming service, HBO Max, this year didn't deliver the excitement Disney + provided a year ago.
With a heavy debt burden and a highly competitive streaming landscape, AT&T stocks remain vulnerable. Risk-averse investors should avoid it … at least for now.
