📺 AT&T: Which Direction For DirecTV?

After an ill-timed acquisition that drew it deeper into debt, AT&T is looking for ways to fund its 5G rollout while selling equity in DirecTV

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AT&T: Which Direction For DirecTV?

After an ill-timed acquisition that drew it deeper into debt, AT&T is looking for ways to fund its 5G rollout while selling equity in DirecTV.

Background: AT&T has made some big-ticket acquisitions in the past. In 2015, the telecom giant acquired satellite TV services provider DirecTV for $67B. In 2018, AT&T spent $85B to acquire media conglomerate, Time Warner. Home to brands such as TNT, TBS, CNN, HBO, and Warner Bros., Time Warner brought a massive pool of content with it.

The idea was for AT&T to leverage Time Warner’s content, collect usage data regarding viewership of the content, with the aim of constructing a potent digital advertising arm.

However, these acquisitions came at a high cost. AT&T’s debt grew from $82B in 2014 to $126B after the DirecTV deal and finally to $177B after the Time Warner acquisition. With the focus shifting to 5G services, AT&T is facing the pressure to cut debt so as to prepare for the 5G rollout.

What Happened? AT&T has been losing subscribers at a consistent pace across its post-paid, U-verse, and DirecTV platforms. The lack of bundled services meant the drop-off has been more severe than seen at traditional cable-based players.

The timing of the DirecTV acquisition has been especially problematic and has been at the receiving end of market disruptions over the past few years. In light of the many streaming services that have taken hold, its PayTV subscriber base has been steadily shrinking (almost 15% since 2016).

While Covid has exacerbated the problem at DirecTV, it has helped HBO and HBO Max as people stayed home and streamed content. With 38M subscribers across the US, the company has reached its 2021 subscriber growth target a year early.AT&T has now made up its mind to sell part of DirecTV stake in order to trim its debt and give 5G rollout a big push. The company is now in exclusive talks with private equity firm TPG Capital to sell a minority stake that will value the company at $15+B. This story is only just getting started.

Market Reaction: On Friday, AT&T closed at $28.93, up 0.35%. T is up 0.41% before hours today.

Company Snapshot 📈

T $28.93 +0.10 (+0.35%)

Analyst Rating (27 Ratings) BUY 30% HOLD 59% SELL 11%

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