What's driving T's earnings volatility in 2024?

AT&T's earnings volatility in 2024 can be attributed to several key factors:

1. **Asset Impairment and Restructuring Charges**: These non-cash charges significantly impacted net income, dropping from $13 billion in 2023 to just under $7.8 billion in the first nine months of 2024. This reduction in asset value reflects strategic shifts and investments in 5G and fiber, which have been partly offset by cost savings from restructuring efforts.
2. **Revenue Shift Dynamics**: While service revenue saw a 1% increase during the first half of the year, equipment revenue dropped, leading to a $200 million decline in total revenue compared to the same period in 2023. This imbalance between service and equipment revenues highlights the challenges AT&T faces in maintaining revenue growth amidst declining legacy service demand and increased investment in new technologies.
3. **Cost Management and Operating Expenses**: AT&T managed to control cost of revenues, reducing them by $800 million compared to the previous year. However, depreciation expenses, which are non-cash, increased by $800 million, contributing to a decline in operating income from $12.4 billion to $11.6 billion for the first half of 2024. This indicates that while the company is making efforts to manage costs, the transition to a more technology-focused model comes with significant depreciation expenses that affect short-term profitability.
4. **Dividend and Debt Management**: AT&T's dividend payout ratio remained sustainable, with free cash flow covering dividend payments and debt paydowns. The company's debt levels decreased, with short-term debt down by nearly $7 billion and long-term debt down by an additional $1 billion. This deleveraging is beneficial for long-term earnings stability and reduces interest expenses, which can positively influence net income.
5. **Market and Technological Shifts**: The transition to 5G and fiber networks has been a significant investment area, with AT&T expecting to continue investing in key areas of 5G and fiber to fuel long-term growth. However, the rollout of 5G and home internet services has been accompanied by increased operating expenses and the need to adapt to evolving market scenarios. The timing of these investments relative to market demand and technological advancements can influence quarterly earnings volatility.

In conclusion, AT&T's 2024 earnings volatility is primarily driven by strategic initiatives such as asset impairment and restructuring, revenue shifts due to technological transitions, and the management of costs and investments in new technologies. These factors, combined with market and technological shifts, have resulted in a dynamic earnings landscape for the company.