AT&T’s Q1 Earnings Show Fiber Growth Offset Legacy Challenges, But Risks Remain

AT&T (T) delivered a mixed but encouraging Q1 2025 earnings report, reporting revenue of $30.63 billion—surpassing analyst expectations of $30.36 billion—and a diluted EPS of $0.61, up 29.8% year-over-year. The results highlight progress in its strategic pivot to high-growth fiber broadband and 5G services, though lingering challenges in legacy segments and margin pressures suggest the path to sustained profitability remains uneven.

Key Highlights

• Revenue Growth: AT&T’s Q1 revenue rose 2% YoY, driven by a 4.7% jump in Mobility segment revenue and a 5.1% increase in Consumer Wireline.
• EPS Beat: Diluted EPS of $0.61 beat estimates of $0.52, though adjusted EPS (excluding one-time items) rose modestly to $0.51 from $0.48 in Q1 2024.
• Free Cash Flow: The company reaffirmed its $16 billion+ annual target, with Q1 free cash flow reaching $3.1 billion, up 10.7% YoY.

Segment Analysis: Growth and Declines

1. Mobility: Resilient But Slowing

AT&T added 324,000 postpaid wireless subscribers in Q1, slightly below the 349,000 in Q1 2024, reflecting intensifying competition from Verizon and T-Mobile. Postpaid churn rose to 0.83% from 0.72%, a sign of promotional discounts eroding margins. However, postpaid phone ARPU grew 1.8%, supported by premium 5G services.

2. Consumer Wireline: Fiber Drives Momentum

The star performer was AT&T Fiber, which added 261,000 net subscribers in Q1—marking 21 consecutive quarters of over 200,000 adds. Fiber broadband revenue surged 19% YoY to $2.1 billion, with 40% of fiber households now bundling wireless services. The fixed wireless product AT&T Internet Air also grew, adding 181,000 net subscribers.

3. Business Wireline: Struggling Legacy Segment

The Business Wireline segment posted a $98 million operating loss, compared to $64 million profit in Q1 2024, as legacy services (e.g., copper networks) declined 17.4%. This drag on margins underscores the challenges of transitioning to cloud-based and fiber-centric offerings.

4. Latin America: Mixed Results

Mexico operations saw revenue fall 8.7% due to foreign exchange headwinds, but EBITDA improved to $193 million from $180 million, signaling operational efficiency gains.

Strategic Initiatives and Risks

• Fiber Expansion: AT&T plans to expand fiber coverage to 30 million locations by year-end, with capital expenditures prioritized for network modernization.
• Cost Savings: The company aims to achieve $3 billion in annualized cost savings by 2027 via AI-driven efficiencies and legacy infrastructure exits.
• Debt Reduction: Net leverage is targeted at 2.5x by mid-2025, with $1.4–1.5 billion from the DIRECTV stake sale (totaling $5.4 billion by 2025) aiding liquidity.

Key Risks to Watch

1. Margin Pressures: Transition costs for fiber and promotional discounts in Mobility could squeeze margins.
2. Legacy Declines: Business Wireline’s operating loss and Latin America’s volatility remain unresolved.
3. Execution Risks: AT&T has missed revenue estimates in 5 of the past 8 quarters, raising concerns about operational consistency.

Stock Outlook

• Upside Drivers:
• Exceeding fiber net adds targets (consensus: 260,360 in Q1).
• Meeting free cash flow goals ($16 billion annually) and leverage targets.

• Dividend yield of 5.8% provides a safety net for income-focused investors.

• Downside Risks:

• A miss on EPS or revenue in future quarters.
• Further declines in Business Wireline or Latin America metrics.
• Competition-driven subscriber saturation in Mobility.

Conclusion

AT&T’s Q1 results demonstrate progress in its high-growth segments, particularly Fiber, which is becoming a critical revenue engine. However, the company’s reliance on transitioning away from declining legacy businesses and managing margin pressures means the road to sustained EPS growth is still fraught with challenges.

The stock’s Zacks Rank #3 (Hold) reflects this mixed outlook, but long-term investors may find value in its $16 billion free cash flow potential and dividend yield. If AT&T can maintain fiber momentum, deleverage successfully, and stabilize margins, its shares could outperform peers. For now, the results are a glass-half-full story—one that investors should watch closely but approach with caution.