I have to wonder how AT&T (NYSE:T) stock can get any more out of me. I spend $450 with the company every month: U-Verse cable, internet and mobile phone services for a family of four.
But if AT&T is going to justify its $85 billion purchase of Time Warner ($108.7 billion including debt) it has to find a way.
From my perspective, the company has spent a lot of tomorrows for a bunch of yesterdays. I’m far more likely to cut my cable than add HBO to it. Once the kids are truly away, we will have fewer phones.
But AT&T has a cunning plan. It’s going to be everything Facebook (NASDAQ:FB) is, and more. By selling advertisers my location data, as well as tracking my TV and Internet usage, AT&T hopes to rake in billions of dollars in advertising each year.
No Cloud for T Stock?
There’s a problem with that vision, and it’s not what you think. It’s not about the surveillance needed to get the advertising, or even the antitrust issues Facebook, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon.Com (NASDAQ:AMZN) are now facing from their own tracking.
It’s how will T stock support all this, beating established Cloud Czars in a market they created, when it doesn’t have a cloud?
The centers were bringing in $300 million annually. AT&T will re-sell Evoque, and Brookfield will invest the capital needed to build Evoque into an “on-ramp” for AT&T, and its largest customers, to larger clouds. But many Evoque centers are already near capacity, and Brookfield will need heavy investment to keep its customers. Since the start of the year Brookfield is up over 20%, double the gain of AT&T.
Building the Business
T stock says it will pull its shows from rival streamers and launch its own streaming service later this year. This includes old Warner-owned shows like Friends, Seinfeld and The Big Bang Theory, and Warner’s $14 billion budget for new TV and movie offerings.
But it’s still losing hundreds of thousands of customers every quarter, between the DirecTv satellite business and U-Verse cable. It also faces the task of overtaking Netflix (NASDAQ:NFLX) amidst a slew of competitors including Walt Disney (NYSE:DIS) and Comcast (NASDAQ:CMCSA) that either have a head start or similar assets.
There’s one more thing. Streaming services bring in, at most, $15 per month. Did I mention my current AT&T bill is $450? I can reduce that by $125, just by cutting the cable cord.
The merger of T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) would create a third powerful wireless provider, an attractive option. The amount I pay AT&T is much more likely to be lower in 2021 than higher, especially if AT&T continues to draw comparisons to the Cloud Czars for its handling of customer data.
The Bottom Line for AT&T Stock
AT&T is presently doing a round of layoffs and cutting its capital spending, tightening its belt to compete with both the Cloud Czars and entertainment giants simultaneously.
It’s the kind of thing that gets a CEO on the cover of the business magazines, with that deep-lined, stark, black-and-white headshot that asks readers “is this guy crazy or what?” AT&T is down 18% in the last three years.
As I mentioned in March, I once bought CEO Randall Stephenson’s arguments, but I have since sold out my position at a loss. A yield of 6.6% isn’t good enough when the stock price keeps dropping and that dividend starts to look threatened. For all its capital spending and entertainment acquisitions, AT&T is still worth less than half of Facebook for a reason.
AT&T isn’t just an elephant trying to tap dance. It’s an elephant trying to join the Bolshoi Ballet.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.