AT&T Stock Just Made Its Q3 Earnings Irrelevant (T)

AT&T Inc. (NYSE:T) will report earnings after the close on Tuesday. However, you can be forgiven if you forgot about the report in the wake of the Time Warner Inc (NYSE:TWX) deal, which is driving AT&T stock down this morning.

AT&T T stock

For the record, analysts expect revenue growth of 5%, or $41.1 billion, and guidance for next quarter growth of roughly 1% year-over-year. The market also wants to see AT&T report at least 74 cents per share on the bottom line — at least, to meet expectations.

More importantly than these numbers will be its wireless postpaid phone subscriber gains during the third quarter. We all know that Apple Inc. (NASDAQ:AAPL) had a record year with the iPhone 7, a far more impressive launch than what it saw with the 6s.

Yet AT&T’s No. 1 competitor Verizon Communications Inc. (NYSE:VZ) unexpectedly reported a loss of 36,000 subscribers in the period. This represents a massive loss compared to the consensus, where analysts expected Verizon to gain 239,000 subscribers on top of the 430,000 it gained the year prior.

Verizon’s huge miss paves the way for AT&T to have a big quarter, suggesting it gained some of what VZ lost. Granted, we already know that Sprint Corp (NYSE:S) and T-Mobile US Inc (NASDAQ:TMUS) antics with discounting and promotions will capture much of the industry’s growth.

However, there is an opportunity for AT&T stock to capture some of the gap between what analysts expected and what Verizon actually produced. And ultimately, this is reason to be bullish headed into AT&T’s third quarter results on Tuesday afternoon.

Moreover, when you consider that T stock is now 11% off its 52-week high, it seems the stage is set for a beat-and-raise kind of quarter.

AT&T Stock: One Potential Risk

As said, the stage is set for AT&T stock to trade higher behind a beat-and-raise quarter. The problem is that AT&T’s performance may be overshadowed by its reaction to the confirmation that it will acquire Time Warner.

T stock fell nearly 2% on Thursday when reports of a potential merger with TWX surfaced, and another 3% after that. AT&T shares are now off another 2% to 3% in Monday’s premarket trade.

Rest assured that this will be the biggest topic during today’s earnings report and conference call. How AT&T tackles this topic will be vital.

Personally, I think AT&T’s $85.4 billion deal for Time Warner is catastrophic.

Yes, there is value in owning media assets, but the video industry is changing rapidly, where Netflix, Inc. (NASDAQ:NFLX) and, Inc. (NASDAQ:AMZN) are now spending more than most networks on content. Furthermore, there is a paradigm shift where social viewing of live video content is happening, and BNL Finance believes it could disrupt the entire $80 billion pay-TV advertising business model.

Clearly, AT&T’s acquisition of Time Warner means it is chasing a bigger chunk of that massive ad market.

With that said, Time Warner is a nearly $65 billion company, which means AT&T will have to increase its $127 billion in debt to finance the acquisition. Then, it will add Time Warner’s near $25 billion in debt, all for a media business that does not fit its core operations.

Now that AT&T has confirmed its bid in Time Warner, I don’t think it matters how many subscribers it gains or if it beats expectations.

For the short-term, AT&T stock is going lower.

As of this writing, Brian Nichols was long T.

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