Last week, wireless carrier AT&T released its first-quarter report showing that it missed market estimates for revenue and free cash flow, sparking a sell-off in the telecoms sector, Reuters reported.
On Thursday, shares in AT&T were poised for their worst trading day in nine months dropping 7 percent. Verizon Communications and T-Mobile US lost between 2 and 3 percent as well.
This year, telecom firms, like other sectors of the economy, have felt the strain from the slowdown in consumer spending, dampening their push for more broadband connections and the adoption of 5G.
John Stankey, CEO of AT&T, said during a post-earnings call that consumers who earn less were making the kind of financial decisions people usually make “when money is a little bit tighter.” He explained that it isn’t that lower-income consumers don’t want the services. They have just decided to stick with what they have for “a little bit longer,” delaying the “discretionary decision” to upgrade.
During the first quarter of 2023, AT&T added 424,000 post-paid subscribers, slightly exceeding the Factset estimate of 422,800 additional subscribers. However, the new subscribers were the lowest in a quarter in over two years.
Wall Street closely watches the post-paid metric as it represents customers who are paying a recurring monthly bill, which is more valuable to wireless carriers.
Equiti Capital’s head macro-economist Stuart Cole to Reuters that AT&T’s first quarter report wasn’t all that bad, explaining that “some aspects” of its operations exceeded estimates. However, the free cash flow figure is what seems to have caused the damage since it “points to likely lower dividend payouts” moving forward, Cole said.
Based on a poll of 18 analysts, Visible Alpha estimated AT&T’s first-quarter cash flow would be $2.61 billion. However, according to its first-quarter report, AT&T’s actual free cash flow came in at only $1 billion.
Additionally, the company’s revenue of $30.1 billion also came in below estimates.