A who’s who of the media and telecommunications world gathered last week at Goldman Sachs’ annual Communacopia conference, which was held virtually for the second year in a row.
Most executives described their company as transitioning to new business models or technologies. On the media side, the focus remains on direct-to-consumer streaming. Telecom players, meanwhile, are deploying fifth-generation 5G wireless networks and expanding their wired fiber footprint, moving away from 4G and copper.
The great wireless CEOs doubled down on their unofficial corporate creeds:
(ticker: VZ) as the network geeks,
(T) as the number squatters, and
(TMUS) as the scrappy upstart.
“Our strategy is the network,” Verizon CEO Hans Vestberg said Tuesday. “Every morning we get up and think about how we can do better for our customers.”
He pointed to “five vectors” of growth in the 5G era, including pushing customers to more expensive plans, new products such as fixed-wireless broadband access and mobile-edge computing, and further revenue from the 5G network through wholesale deals.
Verizon previously set a long-term target of 4% annual revenue growth in the coming years, which would follow a generally flat sales performance over the past half-decade. It appears to be a story for investors: Verizon stocks have lost 2.5%, after dividends, since that guidance was announced on an investor day in March, while the
index has yielded 15%.
AT&T’s John Stankey took investors through his investment thesis on the company’s stock, calling it undervalued based on the sum of its parts, which includes AT&T’s telecom businesses — both wired and wireless — and the soon-to-be-spun off WarnerMedia. The latter will be merged with
(DISCA) to create a pure media company focused on global streaming capabilities and anchored by HBO Max and Discovery+.
Stankey says the market currently values AT&T’s media business as a “cable network asset,” presumably referring to
(VIAC) and Discovery, whose shares trade for less than 10 times future earnings. That’s 36 and 47 times respectively for shares of
(NFLX), which have been rewarded for their scale and rapid growth in streaming.
“My belief is that if we get through this, we need to see that [valuation] several are beginning to see that there is a large direct-to-consumer company that should be valued the same way the market values other large direct-to-consumer companies,” Stankey said last week.
Stankey and AT&T could wait a bit for that higher valuation; the WarnerMedia spin-off is not planned until next year.
For now, AT&T stocks are stuck in a tough spot. Dividend-focused AT&T investors probably don’t value their 71% stake in future WarnerMedia/Discovery business as much as Stankey would like, and they could be eager sellers of the new shares once they’re distributed. Meanwhile, the more growth-oriented investors who may want to bet on the new WarnerMedia/Discovery streaming business would wait to buy the pure-play stock without the weight of AT&T’s telecoms business. That said, there is an opportunity in AT&T stock today; until the dividend is reduced after the spin-off, investors will receive an annual dividend yield of 7.6%.
T-Mobile CEO Mike Sievert gave a typically enthusiastic assessment of his company’s leadership in the 5G era, naming competitors by name. The carrier has led the U.S. wireless industry in subscriber, service revenue and profit growth for several years, even before its Spring 2020 acquisition of Sprint.
Sievert’s pitch to investors is based on continued customer growth, thanks to an improved post-merger 5G network, plus billions of dollars in cost savings through greater economies of scale and the elimination of redundant costs. Those savings will translate into revenue and free cash flow, and T-Mobile said in March it could buy back $60 billion in shares from 2023 to 2025. That’s a big chunk of the $157 billion market value.
For investors, however, the story of customer growth and synergies is not new or controversial. Barron’s recommended to buy the stock in early 2020 at about $80 per share. T-Mobile ended the week at $130, and the stock now trades at about 38 times estimated earnings for the coming year, compared to less than 10 times for AT&T and Verizon.
There is one wildcard left for the entire wireless industry: the increasing competition from the cable companies. At Goldman’s conference, the CEOs of
(ATUS) all gave bullish reviews of their burgeoning wireless products, which have added millions of subscribers in recent years.
For now, the cable companies still rely on the wireless networks of the incumbent operators and therefore share some of the profits. But Charter and Comcast are taking steps to compete more directly in areas where it makes financial sense to do so.
In short, there is no lack of action in the US wireless business today. For the stocks, however, things may be less eventful, at least until some of the dust is cleared.
Write to Nicholas Jasinski at firstname.lastname@example.org