What’s going on?
AT&T revealed an encouraging second-quarter update on Thursday, as the telecoms and media giant’s customers realized a life without WiFi isn’t much of a life at all.
What does this mean?
AT&T recorded more net new subscribers last quarter than investors were expecting, partly because it managed to hold on to so many. It’s not exactly convenient, after all, to switch your cell phone or internet provider when you need to log in to the boardroom from your bedroom. AT&T’s marquee acquisition pulled its weight too: Warner Media saw its revenue climb a better-than-expected 30% from the same time last year. Between those two triumphs, the company beat revenue and profit expectations for the quarter, while also pushing up its earnings estimate for the rest of the year – and investors duly sent its stock up on Thursday.
Why should I care?
The bigger picture: You’re gonna need a bigger bundle.
For years now, global telecoms and media providers have been teaming up to provide services that one has and the other doesn’t. The thinking is that bundling together a variety of products – including phone services, television packages, mobile data, and broadband – will make customers less likely to leave, as well as give companies more room to hike prices over time. AT&T has been following this strategy to the letter, and it seems to be paying off – so much so that investors and rivals alike might want to take note.
For markets: Not all deals are created equal.
The success of Warner Media – bought by AT&T in 2018 – is a reminder of how effective a well-executed acquisition strategy can be. But it’s also pretty rare: the majority of mergers and acquisitions can take years to pay off, even if companies talk a big game about the extra revenue they’ll earn once they team up. If you only have a short-term investing horizon, then, it’s worth being aware that you stand to lose out.