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Can Higher WarnerMedia Revenues Propel AT&T (T) Q3 Earnings?

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AT&T Inc. (T - Free Report) is scheduled to report third-quarter 2021 results, before the opening bell, on Oct 21. In the third quarter, the company is likely to have recorded higher revenues year over year from the WarnerMedia segment due to significant traction from the streaming platform of HBO Max.

Factors at Play

The WarnerMedia segment represents the various business units of the erstwhile Time Warner namely, Turner, Home Box Office, and Warner Bros. It also includes AT&T’s Regional Sports Networks in the Turner division and Otter Media.

The company witnessed healthy traction in HBO Max with a steady increase in subscriber base during most of the quarter, buoyed by a variety of subscription options and unrivaled access to global fan-favorite programs. AT&T expects to rake in 70 million to 73 million HBO Max subscribers by the end of 2021. The company has launched this streaming service in 39 markets in late June in Latin America and the Caribbean and intends to introduce it in six European markets in October, following it up with additional launches in 14 other countries in Europe in 2022. These are likely to have positively impacted its third-quarter performance.

With higher customer adoption, the segment revenues are likely to have increased during the quarter. Moreover, HBO Max boasts a higher-than-average price of $15 a month and is, therefore, reportedly making more money than some of its streaming rivals. However, AT&T apparently lost about 5 million U.S. subscribers as it decided to phase out HBO and HBO Max subscriptions through Amazon Prime Video Channels of effective Sep 15 in order to develop direct-to-consumer relationships. It halved HBO Max subscription price to $7.49 per month for six months in a limited promotional deal till Sep 26 to woo back the customers. This is likely to have affected the profitability of the WarnerMedia segment.

In addition, with live sports and events gaining popularity, TV advertisers have largely returned to the pre-pandemic levels. Intermittent movie releases and series for both traditional TV and streaming services are also expected to have buoyed top-line growth. However, adverse foreign currency translations, evolving market conditions in the aftermath of the deadly virus outbreak, and continued investments in HBO Max for new content production, foregone licensing revenues, and platform costs are likely to have led to soft margins.

Overall Expectations

The Zacks Consensus Estimate for revenues from WarnerMedia is pegged at $8,377 million, indicating an improvement from $7,514 million reported in the year-ago quarter. Operating income is pegged at $2,014 million, implying an improvement from $1,759 million reported in the prior-year quarter. The consensus mark for EBITDA from the segment stands at $2,236 million, suggesting growth from $1,930 million.

The Zacks Consensus Estimate for total revenues of the company stands at $40,542 million, indicating a decline from $42,340 million reported in the prior-year quarter. The consensus mark for earnings is currently pegged at 78 cents per share. It had reported 76 cents in the year-earlier quarter.

Earnings Whispers

Our proven model predicts an earnings beat for AT&T for the third quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.11% with the former pegged at 79 cents and the latter at 78. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

AT&T Inc. Price and EPS Surprise

AT&T Inc. Price and EPS Surprise

AT&T Inc. price-eps-surprise | AT&T Inc. Quote

Zacks Rank: AT&T has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this season:

Qualcomm Incorporated (QCOM - Free Report) is set to release quarterly numbers on Nov 3. It has an Earnings ESP of +0.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Verizon Communications Inc. (VZ - Free Report) is +0.28% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Oct 20.

The Earnings ESP for T-Mobile US Inc. (TMUS - Free Report) is +9.66% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 4.