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AT&T's Q1 Earnings: Revenue Growth Masks EPS Miss Amid Strategic Shifts

Oliver BlakeWednesday, Apr 23, 2025 7:05 am ET

39min read

AT&T (T) delivered mixed results for its first quarter of 2025, reporting revenue of $30.626 billion, narrowly surpassing the FactSet estimate of $30.36 billion. While the telecom giant’s top-line growth outperformed expectations, its adjusted earnings per share (EPS) of $0.51 fell short of the $0.52 consensus estimate. The miss, though narrow, underscores ongoing challenges in a fiercely competitive market. Meanwhile, strategic bets on 5G, fiber, and customer-centric initiatives like the AT&T Guarantee highlight management’s push to future-proof the business.

Revenue: Growth in Core Segments, Dragged Down by Legacy Businesses

The revenue beat was driven by strong performance in AT&T’s Mobility and Consumer Wireline divisions. Mobility revenue rose 4.1% year-over-year, fueled by a 1.8% increase in postpaid phone average revenue per user (ARPU) and lower churn rates. Consumer Wireline broadband revenue surged 19% as fiber adoption continues to gain momentum. However, the Business Wireline division struggled, with revenue dropping 6.1% due to competition from VoIP providers and macroeconomic pressures.

EPS: Missed by a Penny, But GAAP Metrics Shine

While the adjusted EPS of $0.51 missed estimates, GAAP diluted EPS reached $0.61, up from $0.47 in the prior year. This reflects non-operational gains, such as proceeds from the DIRECTV sale and a real estate sale-leaseback deal with Reign Capital, which contributed over $850 million in cash. AT&T reaffirmed its full-year 2025 guidance of $1.97–$2.07 in adjusted EPS, a modest 5% increase from 2024.

Strategic Initiatives: Betting on Customer Experience and Innovation

AT&T is doubling down on initiatives to retain customers and expand its tech footprint:
1. AT&T Guarantee: A first-of-its-kind program offering bill credits for network outages, aimed at rebuilding trust after a major 2024 outage.
2. SplitPay: A billing tool simplifying shared wireless plans, reducing customer churn.
3. IoT Expansion: The Connected Spaces Smart IoT Sensor Kit targets small businesses, leveraging AT&T’s fiber and 5G networks for IoT connectivity.
4. Network Upgrades: A partnership with Nokia to automate network operations and a 1.6 Tbps data transport test (the fastest in the industry) position AT&T for high-bandwidth demands like AR/VR and AI.

Challenges Ahead: Debt, Competition, and Margin Pressure

Despite these positives, AT&T faces hurdles:
- High Debt: While the DIRECTV sale (expected to close by mid-2025) will reduce net debt by $5.4 billion, AT&T still carries over $40 billion in net debt. Its target to achieve a 2.5x net-debt-to-EBITDA ratio by mid-2025 hinges on cost discipline.
- Margin Strain: Promotional offers and discounts to retain customers are squeezing margins. The Business Wireline division’s decline also weighs on profitability.
- Competitive Heat: Rivals like Verizon and T-Mobile are aggressively expanding fiber and 5G coverage, with T-Mobile’s magenta fiber now in 25 markets. AT&T’s $16 billion annual free cash flow target must fund these battles.

Valuation and Outlook: A Hold for Now, but Long-Term Potential

AT&T’s stock has risen 63.6% over the past year, outperforming Verizon (+44.2%) and T-Mobile (+58.7%). However, its forward P/E of 12.46 sits above its historical average of 8.16, suggesting limited upside in the near term.

Investment Takeaway:
- Bulls: Focus on AT&T’s $16 billion free cash flow, dividend yield of 6.2%, and long-term 5G/fiber growth. Fiber broadband adoption is still early, with AT&T’s 22 million fiber passes offering scale.
- Bears: Highlight margin pressures, Business Wireline declines, and the risk of spectrum shortages as data demand surges.

The Zacks #3 (Neutral) rating reflects this balance. While AT&T is navigating headwinds, its cash flow resilience and strategic bets position it as a hold for long-term investors, particularly those seeking dividends and fiber-led growth. Near-term traders may find the stock range-bound until execution risks subside.

Conclusion: A Telecom Titan Navigating Transition

AT&T’s Q1 results show a company split between legacy challenges and forward-looking ambition. Revenue growth and free cash flow stability are positives, but the EPS miss and margin pressures underscore execution risks. With $5.4 billion from DIRECTV and $2.8B in Q1 free cash flow, AT&T has the liquidity to invest in 5G, fiber, and customer retention. Investors should weigh these opportunities against competition and debt. For now, the stock appears fairly valued—a hold for most portfolios, but one to watch as 5G and IoT adoption take off.

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