AT&T Books $15.5 Billion Charge on DirecTV Unit-- 4th Update
January 27 2021 - 1:09PM
Dow Jones News
By Drew FitzGerald
AT&T Inc. booked a $15.5 billion charge on its
pay-television business, reflecting the damage cord-cutting has
taken on its DirecTV satellite unit even as the company's HBO Max
streaming service's growth ramped up.
The write-down created a fourth-quarter loss as the
media-and-telecommunications giant weighs the potential sale of its
pay-TV assets and executives focus their investments on newer
technologies. The company reported quarterly revenue declines in
its legacy-video and WarnerMedia units, offsetting gains in its
core wireless-phone division.
Executives called the noncash accounting charge a sign of the
pay-TV unit's aging status as the Dallas company promotes an
internet-streaming model that gives its content-production business
a direct line to viewers.
"Our biggest and single-most important bet is HBO Max," Chief
Executive John Stankey said on a conference call Wednesday.
Executives plan to expand the service's footprint in other
countries this year and launch an advertising-supported version in
the second quarter.
Overall, AT&T reported a fourth-quarter loss of $13.89
billion, or $1.95 a share, compared with a profit of $2.39 billion,
or 33 cents a share, a year earlier. Revenue fell 2.4% to $45.7
billion.
The coronavirus pandemic has strained the company, pressuring
revenue from cable networks such as CNN and TBS throughout the year
and closing many of the theaters that show its Warner Bros. films.
Those pullbacks obscured recent gains in the company's wireless
service, which still generates more than half of the company's
profit.
The last three months of the year gave AT&T a net gain of
800,000 postpaid phone subscribers, a metric watched closely by
Wall Street. Rivals Verizon Communications Inc. and T-Mobile US
Inc. reported net gains of 279,000 and 824,000 such connections,
respectively.
Revenue from AT&T's WarnerMedia division fell 9.5% to $8.5
billion as the show-business side continued to wrestle with low
box-office revenue and weak advertising revenue. The HBO business
grew and ended the year approaching 42 million U.S. subscribers, a
figure that includes older cable plans as well as the new online
service.
AT&T's media division stunned Hollywood last year with a
plan to release all of Warner Bros.' 2021 movies on HBO Max the
same day they hit theaters. Executives said the move would help the
business cope with audiences reluctant to visit theaters during a
pandemic, while giving the studio's sister streaming service an
extra boost.
The online-only HBO Max service ended the year with 17 million
activated accounts. It isn't yet a year old but is competing in a
crowded global streaming video marketplace where Netflix Inc. has
already eclipsed more than 200 million subscribers world-wide and
Walt Disney Co.'s Disney+ reached nearly 87 million subscribers in
December.
Revenue from AT&T's traditional video unit, which includes
U-verse and DirecTV services, fell 11% to $7.2 billion in the
fourth quarter. The business ended the year with 17.2 million
domestic connections, down from 20.4 million at the end of
2019.
AT&T has held deal discussions with suitors, including
private-equity firm TPG, that valued the video business at more
than $15 billion including debt. The fourth-quarter write-down
reflects how the business has changed since AT&T bought DirecTV
in 2015 for $49 billion, or $66 billion including debt.
The Wall Street Journal reported in August that AT&T had
tapped bankers to explore a deal to take the fast-shrinking
business off its books. The transaction could allow AT&T to
deconsolidate DirecTV's worsening financial results while retaining
a stake in the TV company.
The video losses have weighed on AT&T's stock, which missed
out on the stock market's rally. AT&T shares fell about 20%
last year. The shares were down slightly at $29.47 at midday
Wednesday.
The company projected stability for 2021, predicting core
adjusted earnings in line with last year's $3.18 per-share result
and revenue growth around 1%, with $26 billion of free cash flow.
The company generated $27.5 billion of free cash flow in 2020, a
figure executives highlighted as a sign of strength.
"The business core is going well," AT&T finance chief John
Stephens said. "That shows everybody the power of our resilient
customer base. Cash isn't fictitious, it's real. As such, it's a
real arbiter of value."
AT&T's board last month declined to increase the quarterly
dividend after 36 years of growing payouts. The payments to
stockholders will still cost the company about $15 billion this
year. The company's recent financial forecast would allow it to
continue paying that amount through 2021.
The company is entering the year with a slate of new leaders.
Its longtime boss, Randall Stephenson, retired as chairman of the
board earlier this month after stepping down as CEO in 2020. Mr.
Stephens plans to retire later this year.
AT&T is now led by Mr. Stankey. WarnerMedia finance chief
Pascal Desroches is slated to take over as chief financial officer
later this year. Longtime director and former Federal
Communications Commission Chairman William Kennard assumed the
chairmanship.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
January 27, 2021 12:54 ET (17:54 GMT)
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