Verizon, AT&T Q4 Earnings To Give Clarity On Wireless Market

Wireless industry leaders Verizon Communications Inc. and  AT&T Inc. are on tap to report Q4  earnings this week as they pursue very  different business tacks at the beginning of the 5G era.

AT&T and Verizon are the two largest wireless carriers by subscribers in the U.S., but their business strategies seem to be diverging with the start of the next generation of internet connectivity, as 5G networks are poised to offer faster connections and as new 5G smartphone models are in the works. However, lately AT&T seems to be more focused on entertainment endeavors while Verizon appears to be getting even more aggressive in the wireless network market.

Verizon is scheduled to report Q4 earnings before the opening bell Tuesday Jan. 29, then AT&T is scheduled to report fourth-quarter earnings before the opening bell Wednesday Jan. 30.

As of late January, Verizon shares were up more than 2% year to date, following broader market trends. In the past 52 weeks, the stock has gained about 7.9%. AT&T shares, in contrast, were up 7.8% so far this year, but down 17.3% the past year.

Verizon’s Focus

Verizon is charging ahead investing in its fiber network, which is critical to 5G. Keep in mind that it’s unclear how the partial shutdown of the U.S. government may affect the  5G rollout, as the U.S. Federal Communications Commission ran out of funding Jan. 3. Regardless, Verizon appears more focused on the long-term market here, with 5G expected to go worldwide by 2020.

Verizon is expected to report earnings per share of $1.09, up from $0.86 in the prior-year period, on revenue of $34.45 billion, according to third-party consensus analyst estimates. Revenue is projected to grow about 1.4% year over year (YoY).

In Q3, Verizon’s earnings of $1.22 per share beat the average analyst estimate of $1.19 per share, even as it said it lost 63,000 Fios pay TV subscribers to cord-cutting trends as Fios pay TV competes for viewers with satellite TV and cable. Fios is telephone, internet or television service provided over fiber optic networks. However, Verizon drew 53,000 more subscribers to its Fios broadband, the company said.

Last quarter, Verizon also nabbed 295,000 more phone subscribers in part because of its relationship with Apple, in which consumers are offered up to $750 off the latest iPhone models for signing on with Verizon, it said. Analysts had expected 161,000 net new subscribers.

Verizon Options Activity

For Verizon, the options market has priced in an expected share price move of about 3.3% ($1.83) in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Call activity has been higher at the 58 strike while put activity has concentrated at the 55 and 56 strikes. The implied volatility sits at the 46th percentile as of Monday morning.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

AT&T Ramps Up In Entertainment

As Verizon has been doubling down on wireless networks, AT&T is vying for a bigger piece of the media and entertainment market. This piece of the pie has been in flux for several years amid changing viewer habits that are generally veering away from cable and toward streaming options like Netflix and Hulu. Last year, AT&T acquired media giant Time Warner for $85 billion, giving it a bank of content.

AT&T has already said it will launch a more robust streaming service anchored by HBO to rival competitors like Netflix at a “compelling price point” by Q4 of this year.

For the quarter at hand, AT&T is expected to report earnings per share of $0.86, up from $0.78  in the prior-year period, on revenue of $48.48 billion, according to third-party consensus analyst estimates. Revenue is projected to grow 15.9% year over year (YoY).

Last quarter, AT&T’s results fell short of expectations, sending shares down 8% that day as it revealed it was losing DirecTV subscribers in its satellite TV division. In the third quarter, AT&T lost 359,000 DirecTV subscribers, vs. the 245,000 analysts were expecting, according to FactSet estimates. AT&T acquired DirecTV in 2015 for $50 billion. Meanwhile, its streaming service DirecTV Now added 49,000 subscribers that quarter, significantly off from the 287,000 the Street was expecting.

AT&T’s debt load, which many analysts says is significantly high, is also likely to continue to be on investors’ radars this quarter. It held $183 billion at the end of last quarter, but in recent months it has been announcing strategies to pare back its debt. AT&T has said it will pay down up to $20 billion by the end of this year in part by selling non-core assets, which it expects will raise about $8 billion.

AT&T Options

For AT&T, the options market has priced in an expected share price move of about 3.7% ($1.14) in either direction around the earnings release, according to the Market Maker Move indicator.

Call activity has been higher at the 31 and 32 strikes while put activity has concentrated at the 30.5 strike. The implied volatility sits at the 49th percentile as of Monday morning.

Good Trading,

JJ

@TDAJJKinahan

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.