Summary
- The dividend is sustainable and the debt is manageable.
- The roll out of HBO Max has been described as a catastrophe. A comparison to rivals results provides important insights.
- There are crucial aspects of HBO Max that almost all investors are missing.
- There is a great deal of debate regarding AT&T's (T) debt burden, the company's ability to support the dividend, and the likelihood of lackluster growth for the foreseeable future.
After all, a half decade ago management regaled investors with claims DirecTV would lead to reduced churn and increased growth. With a price tag of $67.1 billion, DirecTV failed miserably.
When DirecTV stats are combined with U-verse, AT&T lost roughly 5 million subscribers from 2016 through Q3 of 2019. In the two quarters that followed, the number of DirecTV subscribers plummeted by nearly 2 million.
Fast forward 5 years, and there is talk of divesting DirecTV to reduce debt.
We are now told that HBO Max will complete the mission originally tasked to DirecTV. However, many view the HBO Max rollout as a failure. Max numbers pale in comparison to Walt Disney's (DIS) 54.5 million subscribers, and there are estimates that over 200 million people are watching Netflix (NFLX).
However, there is a side to HBO Max that is not understood by many investors, and it provides hope for the future.
A Glance At Recent Results
Largely due to COVID related concerns, revenues were down across all segments in Q2 2020. Warner Media revenues dropped 22.9%. The company lost 886,000 TV subscribers, and customers using AT&T Now dropped 46% YoY.
Management estimated COVID impacts of $2.8 billion. Adjusted EPS stood at 83 cents versus analysts' estimates of 79 cents. Consolidated revenues dropped from $45 billion in Q2 2019 to roughly $41 billion.
Source: Earnings call presentation
HBO Max. Was It A Failure To Launch?
The HBO roll out has been characterized by some as a "failure" and by others as a "disaster." You know something is amiss when the HBO Max debut is lambasted by the host of a night show broadcast on HBO:
Voting is a right. It has to be easy to understand and accessible to everyone. Unlike, say, HBO Max. What the %*#! is that by the way? Does anyone actually know? How do I get it? I'm on it and I don't know.
John Oliver "Last Week Tonight" host
There are valid criticisms and concerns leveled at AT&T's efforts. Consumers are confused and ill-informed regarding the differences between HBO Max, HBO Go, and HBO Now. However, that is arguably the least of the company's rollout related problems.
