AT&T Stock: 5G Dreams Dragged Down By 3G Acquisitions And Debts

AT&T Stock: 5G Dreams Dragged Down By 3G Acquisitions And Debts

imaginima/iStock via Getty Images Investment Thesis

AT&T Inc (NYSE: T ) plans to be the leading broadband provider in the US through massive capital investments in 5G broadband and next-generation fiber technology. Based on conservative projections, the company expects a “5x data increase on its network over the next 5 years,” through successful deployments in households and small and medium-sized businesses in the US.

Upon widespread adoption, AT&T should finally be able to move past its historically disastrous M&A activities and potentially improve its stock valuations moving forward. Nonetheless, we still anticipate a Herculean effort to erase its debt of well over $200B. A Potential Leader In 5G With Cloud And Edge Compute Capabilities

The COVID-19 pandemic has brought on the advent of remote work and home-based entertainment of unicast streaming/ online gaming. With the massive demand for real-time Metaverse experiences, such as those offered by Roblox ( RBLX ) and Meta ( FB ), the company also expects increased consumer demand for high-quality broadband networks moving forward. In addition, nearly 37% of American households own more smart home devices in 2020, which is the highest rate worldwide . Based on AT&T’s estimates, US household consumption is expected to increase from 900 gigabytes every month in 2022 to potentially 4.6 terabytes by 2025. As a result, it is evident that consumers are using more data at home, while also expecting high-speed broadband with excellent reliability.

AT&T also seeks to tap into the booming small and medium-sized businesses (SMB), which has reported a 2.5% YoY growth in 2021. It is also important to note that SMBs accounted for 99.9% of all businesses in the US, with an impressive 32.5M businesses as of 2021. In addition, SMBs are also consuming more data, with their usage expected to increase from 600 gigabytes to over 2 terabytes in the next three years. As a result, AT&T has a significant untapped Total Addressable Market, with approximately 50M US households and 10M businesses currently without access to high-speed internet. In addition, we expect AT&T to benefit from the Infrastructure Act passed in November 2021, with a $65B provision to expand high-speed internet access in the US.

AT&T is also eyeing another up-and-coming segment: the cloud computing and data server segment. Given the prevalence of remote work, more companies rely on the cloud and/or data servers for sharing of information and work communication. For example, Amazon ( AMZN ) reported an increase of 37.3% YoY for its Amazon Web Services related revenues, from $45.3B in FY2020 to $62.2B in FY2021. The data center market also predicted massive growth from $230B in 2021 to $519B by 2025, at an impressive CAGR of 21%. Given the robust demand for high-speed internet and cloud computing, AT&T expects to tap on the emerging market of new-age connectivity powered by 5G and next-generation fiber. For example, AT&T shared its experience in working with Microsoft Azure in its March 2022 Investor Day: We’re deploying private 5G in the factory coupled with edge compute powered by Microsoft Azure. This will enable Ford to better transform their manufacturing processes with capabilities such as machine vision to enable real-time quality checks during manufacturing through low latency communications, acoustic detection to capture in real time the sound of a seatbelt click to inform that the seatbelt is working properly, over-the-air firmware updates to the F-150 lightning as it’s moving across the factory floor. ( Seeking Alpha ) To fund these aggressive aspirations, AT&T expects to spend up to $24B each year in capital expenditures in FY2022 and FY2023, with $6B dedicated for 5G transformation and up to $4B for next-generation fiber deployment. The change reflects its organizational shift towards investing in breakthrough technologies, that may deliver widespread adoption rates and sustainable revenue growth moving forward. The company expects the front loading expenditure to moderate to $20B annually from FY2024 onwards. As a result of the massive CAPEX expenses, AT&T expects to improve its wireline footprint from 20% fiber to over 75% coverage of combined fiber and 5G technology, with over 5 fold adoption by 2025.

It is evident that AT&T is finally focusing on its internal growth through software and capabilities development, while optimizing its network and connectivity value proposition. As a result, the company may finally redeem itself from its disastrous past M&A activities, though we expect Herculean effort and work ahead to rid itself of a gargantuan debt of over $200B. AT&T Is Riddled With Ill-Disposed Debt Of Over $200B

AT&T Total Debt S&P Capital IQ AT&T […]

source AT&T Stock: 5G Dreams Dragged Down By 3G Acquisitions And Debts

Leave a Reply