Coverage: AT&T stock drops as more cut the cord

AT&T Inc.’s third-quarter video losses sent pay-TV industry shares down on Thursday after Wall Street analysts raised concerns about the continued threat of consumers cancelling their cable and satellite television subscriptions.

Anjali Athvaley of Reuters had the news:

The No. 2 U.S. wireless carrier, which owns satellite television service DirecTV, said in a filing on Wednesday that it lost 90,000 U.S. video subscribers in the quarter due to intense competition in traditional pay TV markets and the impact of the recent hurricanes. Shares were down 3.8 percent to $36.74 midday on Thursday.

“It should be clear that DirecTV, like all of its cable peers, is suffering from the ravages of cord-cutting,” said Craig Moffett, analyst at MoffettNathanson, in an email. “It is reasonable to expect a weak quarter for the whole pay-TV industry.”

The announcement weighed on other stocks in the sector, with shares of Dish Network Corp, Charter Communications Inc, Comcast Corp and Altice USA Inc trading lower.

AT&T said it added roughly 300,000 subscribers to DirecTV Now, its cheaper option for customers who want to stream television over the internet. That means the company lost 390,000 subscribers to its satellite and U-verse services, who are considered to be higher-value customers.

Jeff Baumgartner of Multichannel News reported that the company reiterated its guidance:

Despite those video losses and devastation cause by recent hurricanes as well as earthquakes in Mexico, AT&T also reiterated full-year 2017 guidance of mid-single digital adjusted earnings growth, capex in the $22 billion range, and free cash flow at the low end of its $18 billion range. However, damage to its network and other property and the cost to restore services and waived charges are expected to result in a drop of Q3 consolidated revenues of nearly $90 million, with pre-tax earnings of about $210 million (2 cents per diluted share).

“We expect further reductions in the fourth quarter as we continue to assess damage to our network and fully restore service,” AT&T said.

AT&T also announced that, effective July 1, it is reporting prepaid IoT connections (mostly for car connectivity) as a separate class in its subscriber categories. That change will result in 97,000 additional prepaid net adds in Q3.

Melissa Repko of the Dallas Morning News reported that the drop was sharper than what AT&T saw in the second quarter:

That drop is roughly equivalent to every Arlington citizen cutting cable or satellite TV. It is a sharper decline than the 351,000 pay-TV subscribers AT&T lost in the second quarter.

In the filing, however, the Dallas-based telecom company pointed to a silver lining. It said it has stemmed  losses with its own cable alternative — online streaming service DirecTV Now. AT&T anticipates that DirecTV Now will gain nearly 300,000 new customers during the third quarter, which would cut the company’s video net losses to 90,000.

AT&T attributed the decline in video subscriptions to increased competition from both traditional pay-TV providers and streaming services, hurricanes and its stricter credit standards, according to the SEC filing.

The decline of cable has hit all pay-TV companies, including AT&T, which became the largest pay-TV provider in the country when it acquired DirecTV in 2015. It has two pay-TV services: DirecTV and U-Verse.