AT&T's Q1 Net Income Surges 24% Amid Strategic Shifts and Persistent Challenges

Nathaniel StoneWednesday, Apr 23, 2025 7:35 am ET
52min read

AT&T’s first-quarter 2025 earnings report highlighted a company in transition: one that is capitalizing on its 5G and fiber broadband investments while grappling with declining legacy businesses. Net income rose to $4.395 billion, a 24% jump from the prior-year period, driven by strong cash flow and operational discipline. However, the results also underscored the uneven execution of AT&T’s strategy, as headwinds in its Business Wireline and Latin America segments tempered the optimism around its core wireless and fiber growth.

The Growth Engine: Mobility and Fiber

The Mobility segment delivered a 4.7% revenue increase, with postpaid phone net additions reaching 324,000—a solid result despite a slight rise in churn to 0.83%. The real star, however, was fiber broadband, which grew 19% year-over-year to $2.1 billion in revenue.

added 261,000 fiber net subscribers in Q1, marking the 21st consecutive quarter of over 200,000 net adds. This relentless expansion has brought fiber coverage to 29.5 million locations, fueling the convergence of wireless and broadband services. Over 40% of AT&T Fiber households now bundle wireless plans, a trend that strengthens customer loyalty and ARPU (average revenue per user).

The fixed wireless product, AT&T Internet Air, also saw rapid adoption, adding 181,000 net subscribers—a 65% increase from Q1 2024. This growth is critical as AT&T aims to reduce reliance on costly traditional copper networks and capitalize on the $16 billion free cash flow target for 2025.

Legacy Challenges and Strategic Adjustments

Not all segments shone. The Business Wireline division posted a 9.1% revenue decline, with an operating loss of $98 million, as enterprises shift away from legacy services like copper-based lines. AT&T’s Latin America division also struggled, with revenues down 8.7% due to foreign exchange headwinds, though operational metrics like EBITDA and postpaid net adds improved.

The sale of its 70% stake in DIRECTV to TPG—a deal expected to close by mid-2025—will further streamline AT&T’s portfolio. The proceeds, along with free cash flow, will fund share repurchases and debt reduction while maintaining the dividend. Management emphasized its net leverage target of 2.5x, suggesting disciplined capital allocation.

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Financial Fortitude and Cautionary Notes

Operating cash flow surged to $9.0 billion, up from $7.5 billion in Q1 2024, while free cash flow hit $3.1 billion, a 10% year-over-year increase. These metrics are critical for funding growth initiatives and shareholder returns. However, adjusted EPS of $0.51 fell short of estimates, and the full-year guidance ($1.97–$2.07) lags behind analyst expectations of $2.09. This suggests that challenges in legacy segments and macroeconomic pressures could persist.

Conclusion: A Dividend-Backed Growth Story with Risks

AT&T’s Q1 results paint a company making progress on its strategic priorities but still balancing growth with cleanup of underperforming assets. The fiber and 5G investments are on track, with convergence driving sticky revenue streams. The $16 billion free cash flow target, if achieved, would support the dividend (currently yielding ~5.8%) and share buybacks, making the stock attractive to income-focused investors.

However, the lingering issues in Business Wireline and Latin America, along with the EPS guidance gap, introduce caution. Investors must weigh the long-term potential of fiber expansion against near-term headwinds. With a forward P/E of ~11x (vs. the S&P 500’s ~23x), AT&T’s valuation appears discounted for these risks.

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In conclusion, AT&T’s Q1 performance reinforces its transition into a high-growth telecom leader, though execution in turning around legacy businesses will be pivotal. For income investors, the dividend remains secure, but growth investors should monitor free cash flow conversion and fiber adoption rates. The sale of DIRECTV and disciplined capital allocation could tip the scales toward outperformance—if AT&T can sustain its momentum without overextending.