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Will Soft WarnerMedia Revenues Hurt AT&T's (T) Q2 Earnings?
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AT&T Inc. (T - Free Report) is scheduled to report second-quarter 2020 results, before the opening bell, on Jul 23. In the second 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.
During the quarter, AT&T launched HBO Max to create other avenues to monetize content while increasing ARPU (average revenue per user) through higher customer adoption by offering about 10,000 hours of premium content from WarnerMedia’s vast portfolio of beloved brands and libraries. Focus on streaming services like AT&T TV that enable users to either stream their favorite content on-the-go or record innumerable shows to watch later is likely to have enabled the company to gain a foothold in the subscription video-on-demand (SVOD) market.
However, 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 Q2 Developments
During the quarter, AT&T was reportedly contemplating the divestment of its gaming business for as much as $4 billion to improve its liquidity position and reduce the debt burden. The held-for-sale business, dubbed the Warner Bros. Interactive Entertainment, apparently evoked positive responses from potential suitors in the gaming arena.
The gaming business was acquired by AT&T as part of the blockbuster buyout of the Time Warner assets in 2018 for $85 billion. The transaction inflated the debt burden of the company, forcing it to devise ways to cut operating costs and unload assets to improve its balance sheet position. The division, which owns some of the famous games in the market like Harry Potter: Wizards Unite, Mortal Kombat 11, Game Of Thrones Conquest, as well as the Lego and Hitman franchises, is likely to lure a fair deal.
Overall Expectations
The Zacks Consensus Estimate for revenues from WarnerMedia is pegged at $6,816 million, indicating a significant decline from $8,350 million reported in the year-ago quarter. Operating income is pegged at $1,396 million, down from $1,970 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $1,555 million, down from $2,061 million recorded in the year-earlier quarter.
The Zacks Consensus Estimate for total revenues of the company stands at $41,385 million, indicating a 7.9% decline from $44,957 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 89 cents in the year-earlier quarter.
Earnings Whispers
Our proven model predicts an earnings beat for AT&T this time around. 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 perfectly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.50%, with the former being pegged at 79 cents and the latter at 78 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:
The Earnings ESP for NETGEAR, Inc. (NTGR - Free Report) is +6.67% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jul 22.
The Earnings ESP for T-Mobile US, Inc. (TMUS - Free Report) is +27.29% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Aug 6.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Image: Bigstock
Will Soft WarnerMedia Revenues Hurt AT&T's (T) Q2 Earnings?
AT&T Inc. (T - Free Report) is scheduled to report second-quarter 2020 results, before the opening bell, on Jul 23. In the second 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.
During the quarter, AT&T launched HBO Max to create other avenues to monetize content while increasing ARPU (average revenue per user) through higher customer adoption by offering about 10,000 hours of premium content from WarnerMedia’s vast portfolio of beloved brands and libraries. Focus on streaming services like AT&T TV that enable users to either stream their favorite content on-the-go or record innumerable shows to watch later is likely to have enabled the company to gain a foothold in the subscription video-on-demand (SVOD) market.
However, 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 Q2 Developments
During the quarter, AT&T was reportedly contemplating the divestment of its gaming business for as much as $4 billion to improve its liquidity position and reduce the debt burden. The held-for-sale business, dubbed the Warner Bros. Interactive Entertainment, apparently evoked positive responses from potential suitors in the gaming arena.
The gaming business was acquired by AT&T as part of the blockbuster buyout of the Time Warner assets in 2018 for $85 billion. The transaction inflated the debt burden of the company, forcing it to devise ways to cut operating costs and unload assets to improve its balance sheet position. The division, which owns some of the famous games in the market like Harry Potter: Wizards Unite, Mortal Kombat 11, Game Of Thrones Conquest, as well as the Lego and Hitman franchises, is likely to lure a fair deal.
Overall Expectations
The Zacks Consensus Estimate for revenues from WarnerMedia is pegged at $6,816 million, indicating a significant decline from $8,350 million reported in the year-ago quarter. Operating income is pegged at $1,396 million, down from $1,970 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $1,555 million, down from $2,061 million recorded in the year-earlier quarter.
The Zacks Consensus Estimate for total revenues of the company stands at $41,385 million, indicating a 7.9% decline from $44,957 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 89 cents in the year-earlier quarter.
Earnings Whispers
Our proven model predicts an earnings beat for AT&T this time around. 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 perfectly the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.50%, with the former being pegged at 79 cents and the latter at 78 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
ATT Inc. Price and EPS Surprise
ATT Inc. price-eps-surprise | ATT Inc. Quote
Zacks Rank: AT&T currently has a Zacks Rank #3.
Other Stocks to Consider
Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:
Watts Water Technologies, Inc. (WTS - Free Report) is set to release quarterly numbers on Jul 29. It has an Earnings ESP of +16.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for NETGEAR, Inc. (NTGR - Free Report) is +6.67% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jul 22.
The Earnings ESP for T-Mobile US, Inc. (TMUS - Free Report) is +27.29% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Aug 6.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>