Topic: Q1 2017
★ AT&T Reports TV and Wireless Subscriber Losses in Q1 2017 (Apr 25, 2017)
AT&T reported Q1 2017 results today, and it looks to have been a grim quarter across its consumer business. It reported net adds of 2.1 million, but in reality saw a drop of 641k subscribers in the quarter due to the disconnection of 2.3 million subscribers as it decommissioned its 2G network and a removal of 400k reseller subs due to an unspecified “true-up” of its reporting. On the TV side, AT&T lost a total of 233k subscribers, a worsening of the past trend, which had been close to zero on a net basis between significant U-verse losses and good DirecTV gains. Those losses mostly came from those customers taking standalone DirecTV service without a bundle, and that’s worrying because although AT&T has been offering wireless-TV bundles since the merger closed, it can’t offer a national broadband-TV bundle, which is the one consumers mostly care about. That, in turn, is going to make it hard to turn that trend around, especially given that AT&T is already offering strong incentives for customers to bundle TV with wireless, including a $25 bill discount for TV and free HBO.
On the wireless side, connected devices (such as connected cars) continue to be the salvation for its overall subscriber numbers, because its postpaid business actually shrank in the quarter for the first time ever (as did Verizon’s), while its reseller numbers dropped like T-Mobile’s (possibly because big MVNO Tracfone disconnected 1.3m subs in the quarter). The re-introduction of unlimited plans was, however, a hit, with around 4.4 million new subscribers since the change, a more than 50% increase in that base. However, AT&T characterized its position now as being more or less the same competitively as at the beginning of the quarter, suggesting it doesn’t see any kind of permanent lift from the change. Financially, things overall were a little better – AT&T has been holding costs down in wireless which has allowed its margins to expand despite revenue challenges, and although equipment revenue is dropping rapidly due to much lower phone upgrade rates, that’s effectively zero-margin revenue anyway.
via AT&T
★ T-Mobile Releases Q1 2017 Earnings, Improving Margins, Slowing Sub Growth (Apr 24, 2017)
T-Mobile released its Q1 earnings today, and there were quite a few familiar trends: strong revenue growth, improving margins, and lots of talk about how awful TMO’s competitors are. But this quarter also saw a return to the slowing subscriber growth we saw in the first half of last year, which is indicative of T-Mobile’s business today: it’s doing very well within what’s a rapidly slowing market with very little additional headroom. All four of its major customer categories (postpaid, postpaid phones, prepaid, and wholesale) saw lower net adds year on year. In the case of both prepaid and wholesale, the decline was signifiant, and wholesale net adds were negative for the first time in recent memory. T-Mobile said it did very well against AT&T in the quarter, which means for AT&T itself to have done well overall it will have had to hold its own much better against Sprint (which hasn’t yet reported) and Verizon (which has, and had a horrible quarter). T-Mobile continues to invest very heavily not just in spectrum but also in store expansion – it’s now targeting 3000 new stores this year, split evenly across its T-Mobile and MetroPCS brands, up from 2500 at the start of the year. So far, the strategy continues to work reasonably well, but there’s a ceiling on growth in the categories T-Mobile targets, especially with Verizon and AT&T getting back into unlimited, so I’m curious to see how much growth slows in 2017, though it appears margins are going to continue to improve anyway (though they’re still way below those of the two big carriers).
via T-Mobile (PDF)
★ Verizon Reports Poor Q1 2017 Results, Offset a Little by Unlimited Reintroduction (Apr 20, 2017)
Verizon today announced its Q1 2017 results, and they completely explained the company’s unexpected and rapid reintroduction of unlimited wireless plans in the quarter. Before it reintroduced those plans, it was on a trajectory for by far the worst postpaid phone losses it’s ever seen, and even with the little bit of growth it saw after the launch, it still had its worst quarter ever by some margin. Tablets also shrank for the first time ever, which in turn led to the company’s first-ever postpaid net losses in a quarter. Churn was up, average revenue per account was down… this was a terrible quarter for Verizon, only salvaged partly by the unlimited launch. Q2 and the rest of the year should be quite a bit better, but it’s clear that Verizon has been suffering recently, most likely at the hands of both T-Mobile and Sprint, which has explicitly targeted it in its advertising. Outside the wireless business, things weren’t that much better – wireline revenues were fairly flat, while margins improved a little. But there’s really no growth driver in the business at the moment, as essentially every part of the business is flat or declining, though the whole thing is still highly profitable.
via Verizon
Qualcomm Details Apple Dispute Financials in Earnings Release (Apr 19, 2017)
Qualcomm has just reported its earnings for the March quarter, and one of the most interesting aspects is its commentary on its dispute with Apple. It says that Apple’s suppliers reported but did not pay around $1 billion in royalties in the quarter, which exactly offset the $1 billion Qualcomm is refusing to pay Apple under the Cooperation Agreement the two companies have, and which Qualcomm says Apple breached. Importantly, that Agreement ended in December, so there are no more payments to be withheld, which means if Apple suppliers continue to withhold royalty payments, they’d affect Qualcomm financially going forward in a way they didn’t this past quarter. As such, it’s given a wider EPS guidance range (25 cents) than usual (it was 10 cents in the last two quarters, for example) because of the uncertainty over these royalty payments (the math here is tricky but I reckon that’s about a $400m range in net income terms). Beyond the Apple dispute, the results are a little tricky this quarter because on paper they look terrible, with revenues and profits way down over the same quarter last year. But that’s partly because Qualcomm had to reduce from its GAAP revenues the nearly one billion dollars it’s due to pay BlackBerry as a result of arbitration between the two companies. The actual results are much better, in keeping with recent trends at Qualcomm, lawsuits aside.
via Qualcomm (see also slide deck)
★ Netflix Reports Q1 2017, Gains 5m Subs, Makes First Profit Internationally (Apr 17, 2017)
Note: this is my first piece of commentary on Q1 2017 earnings. The Q1 2017 tag attached to this post will eventually house all my earnings comments for this quarter, just as the Q4 2016 tag does for last quarter and the earnings tag does for all past earnings comments. Netflix is also one of the dozen or so companies for which I do quarterly slide decks as part of the Jackdaw Research Quarterly Decks Service. See here for more.
Netflix today reported its earnings for Q1 2017, and the results were mostly good, with a few possible red flags. This year, the new season of House of Cards will debut in Q2 rather than Q1, and that makes some of the year on year comparisons tough. One of the results was much weaker Q1 subscriber adds this year than a year ago in the US, worsening what’s already been a trend of slowing growth for several years. Netflix is projecting something of a recovery next quarter, however. In some ways, the biggest news was the first quarterly profit for the international business, which has neared profitability in the past but been plunged deeper into the red by market expansions every time it did so. Now that Netflix is in essentially every country it can be, that won’t be the case anymore, so although it’s projecting a return to small losses next quarter, it’s now saying it wants to be judged partly on growing revenue and margins globally over time, which is a big shift (previously it wanted to be judged on sub growth and domestic margins only).
There were a couple of mild admissions of failure: customer satisfaction in Asia, the Middle East and Africa is not what it could be, and the company’s Crouching Tiger sequel didn’t achieve its goals for original content. Marketing spend will be up at least a little in 2017, and content obligations continue to grow. The company also made clear that the big free cash flow losses caused by its investment in original content will continue for “many years”, though it also said that it will eventually throw off significant cash when it hits a “much larger revenue base”, giving I think the clearest indication yet of what a long-term project positive free cash flow will be. In the meantime, it will continue to borrow to fund that growth. Domestically, profits are growing very rapidly, and the theory continues to be that eventually the International business will reach that level of maturity too and deliver decent margins. But in the meantime, a bet on Netflix continues to be a bet on continued high growth, something which certainly isn’t guaranteed in the US and may end up being tough long term internationally too.
via Netflix Shareholder Letter (PDF)
Samsung sees bounce in Q1 ahead of Galaxy S8 – CNET (Apr 6, 2017)
The first part of this article suggests that the strong Q1 results Samsung is forecasting would be a bounce back from the Note7 debacle, but the reality is that Samsung already saw that bounce back in Q4 2016, which was its best-ever quarter for operating margins and flat revenues year on year despite the hole left by the Note7. This quarter would improve margins still further while also potentially maintaining flat or slightly increased revenues year on year again. What Samsung doesn’t tell us in these preliminary results notices is where the money is coming from, but last quarter semiconductors made a big contribution, and it’s likely that this division is the big hero again this quarter. It’s by far the company’s most profitable division, and although it contributes less revenue than the mobile segment, its contribution has been growing there too. So although the Note7 rebound narrative is attractive, this is really about components not phones, as the phone business continues to be roughly stagnant rather than thriving.
via CNET