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Will Soft WarnerMedia Revenues Affect AT&T's (T) Q4 Earnings?

AT&T Inc. T is scheduled to report fourth-quarter 2020 results before the opening bell on Jan 27. In the fourth quarter, the company is likely to have recorded lower revenues year over year from the WarnerMedia segment due to the adverse impacts of the coronavirus pandemic, foreign currency translation and additional investments for new content production in HBO Max.

Factors at Play

The WarnerMedia segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office and Warner Bros. It also includes AT&T’s Regional Sports Networks in the Turner division and Otter Media.

The company is witnessing healthy traction in HBO Max with a steady increase in subscriber base buoyed by the Christmas day release of “Wonder Woman 1984”. The availability of HBO Max on Amazon Fire TV has further enhanced its customer appeal. Despite higher customer adoption of HBO Max, the segment revenues are likely to have been hard hit due to a pullback by TV advertisers with relatively lesser live sports and events taking place. In addition, delayed movie releases and series for both traditional TV and streaming services are expected to have affected top-line growth. Moreover, adverse foreign currency translations, evolving market conditions in the aftermath of the deadly virus outbreak and continued investments in HBO Max for new content production, foregone licensing revenues and platform costs are likely to have led to soft margins.

Key Q4 Developments

During the quarter, AT&T was reportedly contemplating the divestment of its Crunchyroll anime business to Sony’s Funimation Global Group for $1.175 billion in cash to improve its liquidity position and reduce the debt burden.

Founded in 2006 and headquartered in San Francisco, Crunchyroll is part of WarnerMedia’s Otter Media division that offers a direct-to-customer service. It caters to more than 3 million users for its subscription video-on-demand content. About 90 million registered users across more than 200 countries access its advertising-based video on demand, manga content, mobile games and events merchandise.

Overall Expectations

The Zacks Consensus Estimate for revenues from WarnerMedia is pegged at $8,239 million, indicating a modest decline from $8,924 million reported in the year-ago quarter. Operating income is pegged at $1,877 million, implying a fall from $2,422 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $2,019 million, suggesting a decline from $2,576 million.

The Zacks Consensus Estimate for total revenues of the company stands at $44,547 million, indicating a 4.9% decline from $46,821 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 73 cents per share. It had reported 89 cents in the year-earlier quarter.

Earnings Whispers

Our proven model does not predict an earnings beat for AT&T for the fourth quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #4 (Sell).

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

T-Mobile US, Inc. TMUS is set to release quarterly numbers on Feb 4. It has an Earnings ESP of +11.17% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc ST is +2.50% and it sports a Zacks Rank of 1. The company is set to report quarterly numbers on Feb 2.

The Earnings ESP for Altice USA, Inc. ATUS is +3.11% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 10.

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AT&T Inc. (T): Free Stock Analysis Report
 
Sensata Technologies Holding N.V. (ST): Free Stock Analysis Report
 
TMobile US, Inc. (TMUS): Free Stock Analysis Report
 
Altice USA, Inc. (ATUS): Free Stock Analysis Report
 
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