AT&T's revenue and earnings slipped in the first quarter from a year earlier, but the real news was a slowdown in subscriber growth for its postpaid phone plans, which caused the stock to slump in premarket trading Thursday.
Overall, AT&T reported earnings of 60 cents per share after stripping out certain one-off expenses, slightly higher than the 58 cents predicted. Revenue of $30.1 billion was slightly lower than expectations of $30.2 billion.
In the year-ago quarter, AT&T reported adjusted earnings of 77 cents a share on revenue of $38.1 billion. AT&T stock dropped 4.6% in premarket trading Thursday.
AT&T reported a net gain of 424,000 in its postpaid subscriber base for the first quarter, narrowly ahead of the 422,800 consensus among analysts tracked by FactSet. AT&T had added 691,000 postpaid phone subscribers in the year-earlier quarter, followed by more than 800,000 and 700,000 in the second and third quarters.
The slowdown in the activity of postpaid subscribers—people who pay for phone services via a monthly bill—comes after social distancing during the pandemic made the world more dependent than usual on phones and the internet, leading to high penetration.
AT&T's Chief Financial Officer Pascal Desroches in a conference with Deutsche Bank analysts earlier this year had said he definitely started seeing a moderation in demand in the second half of 2022.
Deutsche Bank analyst Bryan Kraft expects the telecom industry overall to add above eight million postpaid phone subscribers this year, a decline from 9.3 million in 2022, he wrote in a note on Monday.
AT&T's postpaid phone business posted average revenue per user of $55.05, up 2% from a year earlier and slightly below the $55.20 estimate. It is likely benefiting from price increases carried out for older wireless plans last year as well as the migration of users to those plans and increased international roaming activity as business travel resumed.
AT&T's free cash flow , a focus after the company cut its dividend last year, came in at $1 billion, up from $733 million a year earlier but well below the $3.2 billion consensus estimate from Wall Street.
That shouldn't scare investors too much as the company has set expectations of greater free cash flow in the second half of the year due to the timing of capital investments and device payments. AT&T said Thursday it's still on track for a full-year free cash flow of $16 billion or better, as predicted earlier.
AT&T is the first major telecom firm to report first-quarter earnings, and AT&T's (ticker: T) results underscore the growing competition as demand drops from pandemic highs when phone and internet use surged. Wall Street has been particularly focused on subscriber growth as AT&T, T-Mobile (TMUS) and Verizon (VZ) duke it out for the same group of customers in a shrinking market.
Verizon reports on April 25, and T-Mobile reports on April 27. Both companies in their filings with the Securities and Exchange Commission have warned investors of a moderation in the wireless industry's customer growth rate.