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AT&T Earnings Down as it Gears Up for HBO Max

AT&T reported lower fourth-quarter profits as it gave up revenue in order to stockpile content for the upcoming launch of its HBO Max streaming service.

Net income was $2.4 billion, or 33 cents per share, down from $4.9 billion, or 66 cents a share, a year ago. Adjusting for merger costs, write offs and non-cash losses on benefit plans, earnings per share would have been 89 cents, compared to 86 cents.

Revenue fell to $46.8 billion from $48 billion a year ago. The company said that excluding content revenue foregone in preparation for the launch of HBO Max, revenue was flat.

Earnings before interest, taxes, depreciation and amortization at AT&T’s WarnerMedia unit dropped to $2.6 billion from $2.6 billion as revenue slid to $8.9 billion from $9.2 billion.

Gearing up for HBO Max cost $1.2 billion in revenue and $500 million in earnings, the company said. Excluding HBO Max, WarnerMedia earnings would have risen 11% to $3.1 billion and revenue would have gained 10% to $10.1 billion. Revenue rose 1.6% at Turner and $1.9% at HBO, while Warner Bros. absorbed the revenue foregone to create HBO Max.

AT&T’s Entertainment Group’s earnings dropped to $2 billion from $2.2 billion as revenue dropped 6.1% to $11.2 billion from $12 billion. The company said it had a net loss of 945,000 premium video subscribers and AT&T TV Now lost 219,000 subscribers. 

At the end of 2019, AT&T had about 20.4 million video connections, including 926,000 AT&T TV Now subscribers.

Operating income for AT&T Xandr advertising unit was $413 million, up 8.4%. Revenue was up $7.2% to 607 million. Expenses were up 4.9% because investments in technology and the development of Xandr’s data advertising platform.

AT&T reaffirmed its guidance for 2020, including earnings of $3.60 to $3.70 a share, including investments in HBO Max, and revenue growth of 1% to 2%. It’s three-year plan calls for compounded annual growth of 1% to 2% and adjusted earnings per share of $4.50 to $4.80 by 2022.

The company is planning on no major acquisitions and expects to pay off the debt it took on to buy Time Warner by 2022.

AT&T said it hit its financial targets for the year. The fourth quarter results were slightly a head of Wall Street forecasts for earnings, but revenue was less than expected.

“We delivered what we promised in 2019 and we begin this year with strong momentum in wireless, with HBO Max set to launch in May and our share retirement plan well underway,” said CEO Randall Stephenson.“Our 2020 outlook positions us to deliver meaningful progress on our 3-year financial and capital allocation plans as we continue to invest in growth opportunities and create value for our owners, as we did last year.”