AT&T Misses Q1 Revenue Target, Citing COVID-19 and Declines at WarnerMedia and Pay-TV Unit

AT&T missed revenue and earnings estimates for the first quarter of 2020, with a 4.6% top-line decline driven by lower revenue at WarnerMedia and ongoing losses in its pay-TV biz, which shed 1 million subscribers in the period. The telco also blamed the current coronavirus crisis as cutting into profits.

The company reported Q1 revenue of $42.78 billion and net income of $4.58 billion (adjusted earnings of 84 cents per share). Wall Street consensus estimates pegged revenue at $44.15 billion and adjusted EPS at 85 cents.

The lower-than-expected revenue was “primarily due to declines at WarnerMedia reflecting strong theatrical carryover revenues in the first quarter of 2019,” as well as continued declines in video subscriptions and legacy services, AT&T said.

The COVID-19 pandemic reduced earnings by $433 million in the first quarter, according to AT&T. Backing out the impact of the coronavirus crisis, “the quarter was about what we expected — strong wireless numbers that covered the HBO Max investment, and produced stable EBITDA and EBITDA margins,” Randall Stephenson, AT&T’s chairman and CEO, said in announcing earnings.

In reporting Q1 earnings, AT&T said, “Due to the lack of visibility related to COVID-19 pandemic and recovery, the company has withdrawn financial guidance at this time.” The company last month warned investors that the COVID-19 pandemic could have a material impact on the business.

For Q1, WarnerMedia had $7.4 billion in revenue, down 12.2% from $8.4 billion from a year earlier. The biggest hit to the media segment’s top line was a $540 million decline for the “eliminations and other” line item.

Turner revenue for the first quarter of 2020 was $3.2 billion, down 8.2%, driven by lower ad revenue primarily from the cancellation of the NCAA March Madness men’s basketball tournament. HBO’s revenue was $1.5 billion, down 0.9%, while operating expenses increased 13.9% to $1.1 billion mainly because of content investments for HBO Max.

AT&T said Warner Bros.’s 7.9% decline in revenue for Q1, to $3.2 billion, was attributable to “unfavorable comparisons” to the prior-year period (which included carryover revenue from the theatrical release of “Aquaman”). WB also had lower initial telecast revenues for the most recent quarter resulting from coronavirus-related TV production delays.

The telco’s pay-TV business, meanwhile, continued its downward trajectory. AT&T had approximately 19.4 million video connections at the end of March — down 1.04 million sequentially and a 19% year-over-year drop. The Q1 numbers included a net loss of of 897,000 subs for DirecTV and AT&T TV, the telco’s broadband-delivered pay-TV service. Subscribers to the AT&T TV Now over-the-top video service declined by 138,000.

A day earlier, WarnerMedia announced May 27 as the launch date for HBO Max, its super-sized subscription video service engineered to battle Netflix, Hulu and others. AT&T will bundle HBO Max with its most expensive TV, wireless and internet plans and offer free trials for most other customers ranging from one to 12 months. In addition, HBO subs on DirecTV and other AT&T TV services will be automatically upgraded to HBO Max.