The telecom sector is witnessing a deluge of second-quarter 2015 earnings releases apart from a few consequential developments. Telecom behemoth AT&T Inc. T reported mixed financial results in the second-quarter 2015 wherein earnings per share outpaced the Zacks Consensus Estimate while revenues lagged the same. However, the company added 2.1 million wireless subscribers in the quarter.
In addition, AT&T completed the acquisition of DIRECTV after receiving the final approval from the Federal Communications Inc. (FCC). The transaction was on hold for the last 14 months and marked one of the biggest merger and acquisition deal in the pay-TV industry, which is currently witnessing significant consolidation. However, in order to attain the FCC’s approval, AT&T has agreed to certain conditions.
Meanwhile, the telecom sector has so far delivered a mixed second-quarter 2015 earnings session. Companies like Comcast Corp. CMCSA, Level 3 Communications Inc. LVLT, American Tower Corp. AMT and Rogers Communications Inc. RCI have all reported mixed results. On the other hand, the stock price of Sprint Corp. S plummeted considerably in the last week owing to market concerns over the company’s cash position and long-term competitiveness. Sprint will declare its earnings results next week.
Beside earnings announcements, other developments also took place in the telecom sector which are worth of be mentioned. Verizon Communications Inc. VZ delayed the launch of its mobile video service. The new product which was initially scheduled for a mid-2015 launch, will reportedly hit the markets within the next six weeks.
In Europe, Nokia Corp. NOK has cleared a major regulatory hurdle regarding its proposed takeover of Alcatel-Lucent ALU after receiving a go ahead from the European Commission. (Read the last Telecom Stock Roundup for Jul 23, 2015.)
Recap of the Week’s Most Important Stories
1. AT&T reported financial numbers for the second quarter of 2015. The company’s earnings surpassed the Zacks Consensus Estimate while revenues missed the same. AT&T’s adjusted earnings per share moved up 11.3% year over year to 69 cents, beating the Zacks Consensus Estimate of 63 cents.
On a GAAP basis, the company reported net income of $3.1 billion or 58 cents per share in comparison with net income of $3.6 billion or 68 cents in the year-ago quarter. Quarterly total revenue increased 1.4% year over year to $33,015 million but lagged the Zacks Consensus Estimate of $33,085 million. (Read More: AT&T Q2 Earnings Beat as Wireless Subscribers Increase.)
2. AT&T has scaled up to the highest position in the U.S. pay-TV market with the acquisition of DIRECTV. After a gap of over a year, AT&T has finally received the green signal for the takeover from the FCC. Meanwhile, the Department of Justice (DOJ) has concluded its review and has confirmed that the deal does not pose any competitive threat.
In May 2014, AT&T had inked a definitive agreement to buy U.S. satellite TV operator DIRECTV for $48.5 billion, in a cash and stock deal. For the successful completion of the deal, AT&T has made a few commitments to the FCC. (Read More: AT&T-DIRECTV Deal Crosses the FCC Hurdle, Closes.)
3. Recently, the European Commission (EC), the telecom regulatory body of the European Union (EU), approved the Nokia/Alcatel-Lucent merger deal following a Phase 1 review without enforcing any condition. The EC concluded that the merger will not have any impact on competition as the geographical areas of operations of these two entities are largely different. Moreover, post-merger, a number of strong global competitors will remain in the market. The proposed merger is expected to close by mid-2016. (Read More: Nokia Gets EU Regulatory Nod for Alcatel-Lucent Takeover.)
4. According to a recent report by Variety, Verizon’s new mobile video service named “Go90” is scheduled to launch within the next six weeks or so. Importantly, Variety also reported that this ad-supported over-the-top video service will be offered free of cost at least initially.“Go90” will offer full TV shows, live music videos and short-form clips and may also reserve some contents exclusively for Verizon’s wireless subscribers. The service will provide applications for iPhones and Android-based smartphones. (Read More: Is Verizon Aiming to Launch Mobile Video This Summer?)
5. Sprint suffered a major setback as its stock price plunged significantly last week. As the U.S. market boasts a high 95% rate of wireless penetration, competition is likely to remain intense. This, in turn, could pressure top and bottom-line results for carriers vying for market share. Several analysts remain concerned about the company’s cash position. The company suffers from a structural deficiency of limited availability of low and mid-band spectrum. (Read More: Sprint Plummets, Will It Continue Downhill?)
Price Performance
The following table shows the price movement of major telecom players over the past week and the last six months.
|
Company |
Last Week |
Last 6 Months |
|
VZ |
+0.24% |
+3.33% |
|
T |
+1.23% |
+8.17% |
|
S |
-8.66% |
-18.12% |
|
TMUS |
-1.83% |
+25.35% |
|
VOD |
+3.21% |
+8.11% |
|
CHL |
-0.98% |
-3.67% |
|
AMX |
-4.33% |
-13.68% |
|
CMCSA |
-3.13% |
+16.98% |
|
DISH |
-0.52% |
-11.57% |
Over the last five trading sessions, share price movement of most major telecom stocks was negative. Several large telecom companies have posted tepid financial results which largely explain the share price declines. Sprint depreciated the most at 8.66% over the same time frame.
However, over the last six months, the price performance of key telecom stocks was mixed. T-Mobile US and Comcast rallied a considerable 25.35% and 16.98%, respectively while Sprint and America Movil lost 18.12% and 13.68%, respectively.
What’s Next in the Telecom Sector?
We expect activities to continue in the telecom sector as several telecom and cable TV operators are slated to announce their second quarter earnings results next week. Notable among these companies are U.S. telecom operators Sprint, Telephone & Data Systems, United States Cellular Corp., Frontier Communications, CenturyLink and Windstream Holdings.
Pay-TV operators Charter Communications, Cablevision Systems, DISH Network and Liberty Global are also in the lineup. In addition, Canadian telecom operators Telus Corp. and BCE Inc. will also declare their financial results.
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