HBO Max launched this year to a lot of fanfare for AT&T (NYSE:T). There were expectations that viewers would flock to the new streaming service to see old favorites and new exclusive content. But the reality for HBO Max and AT&T stock is much different.
In fact, HBO Max has so far failed to move the needle at all for AT&T, even though the upgraded service is basically free for millions of potential users.
Unless AT&T changes its strategy, HBO Max will get lost among a sea of competitors in the streaming media space.
Look at the Numbers
In its most recent earnings report, AT&T proudly promotes that HBO Max subscriptions doubled in the quarter, adding 4.5 million to top 8.6 million total activations since it launched in May.
Total subscriptions for HBO and HBO Max topped 38 million in the third quarter. That beat the company’s full-year goal of 36 million.
But you have to look under the surface to see the real picture for AT&T stock.
The reality is that most of the new HBO Max customers are current HBO subscribers who are merely switching over to HBO Max. That’s something they can do at no additional price, so it’s not as if HBO and AT&T see extra money coming in from those “new” customers.
The total number of HBO and HBO Max subscribers in the U.S. grew by only 2 million in the last quarter. That’s a more accurate assessment of HBO’s snail-pace growth.
Globally, HBO and HBO Max have only 57 million subscribers. In comparison, Netflix (NASDAQ:NFLX) has more than 195 million subscribers. Disney (NYSE:DIS), which launched its Disney+ service a year ago, has 60 million subscribers.
It’s an Uphill Climb
I’m not saying that HBO Max and AT&T had the deck stacked against them. But AT&T isn’t making it easy for its entrant in the streaming video space to compete with Netflix, Disney and other competitors.
First, there’s the price. Netflix’s most popular plan just increased from $13 to $14, with its platinum tier jumping up to $18 per month. And it still offers a basic plan that’s priced at only $9.
Disney, meanwhile, is attracting customers with super-low pricing of $7 per month, while at the same time promoting itself as the home of the Star Wars and Marvel universes, as well as having Disney’s iconic movie library.
HBO Max costs more that twice of that – $15 per month. For that price, customers get HBO’s current series and movies as well as content from WarnerMedia.
HBO Max has some streaming favorites – the iconic “Friends” TV series jumped from Netflix to HBO Max. HBO Max was also the home of a recent reunion of cast members of “The West Wing,” which put on a stage production of an episode to promote Election Day.
But it’s not enough. Here’s the stone-cold reality: HBO Max is already available to millions of current HBO customers. At no extra charge. But they aren’t downloading it. Even HBO’s customers don’t see the value of switching over to HBO Max.
AT&T Stock at a Glance
It’s only fair to point out that AT&T had a good third quarter. Revenue came in at $42.3 billion, which beat analysts’ expectations of $41.61 billion. Earnings per share was 76 cents, which matched analysts’ predictions.
But those numbers also showed softening from a year ago. Revenue dropped 5% on a year-over-year basis, while profits were down 19% from a year ago.
A lot of the revenue loss came from its WarnerMedia division, which had a 10% drop in revenue to $7.5 billion. The company cited the affects of the novel coronavirus pandemic, which affected advertising at Turner broadcasting properties and delayed movie releases.
In addition, AT&T disclosed that it lost 590,000 paid TV subscribers, mostly from its DirecTV division. It also lost 37,000 internet video subscribers.
As I mentioned recently, AT&T stock suffers from a massive debt load. The company accumulated $163.1 billion in debt by the end of last year. Paying off that debt is going to be a huge burden on the company.
The Bottom Line
While AT&T stock offers a big dividend of 52 cents per share, even that income isn’t enough to make T stock a tempting purchase. There’s too much debt, too many sagging businesses, and HBO Max is off to an uninspiring start.
AT&T stock gets a well-deserved ‘F’ grade in my Portfolio Grader, where I has a strong sell recommendation.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article was long AMZN.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.