Decisive AT&T and Verizon hell and heaven stocks valuation

The key factors that determine the valuation of AT&T and Verizon stocks

AT&T

Two major telecommunications providers in the U.S.

AT&T (ticker: T) and Verizon (ticker: VZ) are the top two telecommunications companies in the United States, with similar market values and scales, and they compete fiercely in various fields. Investors may have discovered that the field of competition between the two has quietly expanded to the media in recent years.

AT&T

Amazing dividend

The dividends distributed by these two companies are amazing. In the US stock market, they have been in the dividend leader group for a long time. They are very suitable for dividend owners to consider. Please refer to my other post “U.S. stocks’ dividend-rich industries and difference from Taiwan“.

AT&T’s business

Let’s first take a look at which companies are included in AT&T’s media empire:

  • Time Warner, this $84.5 billion mega-merger is the fourth largest transaction in the history of the media and communications industry. It triggered antitrust review and was delayed until 2018. Disney (ticker: DIS) grabbed 38% of the $11.26 billion in the U.S. box office in 2019, followed by Time Warner with 13.8%.
    • HBO: Including HBO cable TV and the HBO Max streaming service launched in 2020, HBO Max subscribers have reached 9.7 million.
    • Warner Bros film production company: Disney grabbed 38% of the 2019 US box office of 11.26 billion U.S. dollars, followed by Warner with 13.8%.
    • Warner Bros Games
  • Discovery (ticker: DISCA)
    • Discovery Plus streaming subscribers reached 15 million.
    • HGTV
    • Oprah Television Network
    • Eurosport
  • DirecTV
    • Now streaming service
    • DirecTV pay TV service
    • Direct TV live satellite service
  • CNN
  • AppNexus: A digital advertiser with both SSP and DSP business.

Verizon’s business

Let’s take a look at the companies that Verizon’s media empire “used” owned:

  • Verizon Media Group: That is, Yahoo Group, which was acquired for $4.83 billion in 2017, formerly known as Oath. In May 2017, Verizon Media Group and America Online were packaged and sold to Apollo Group for $5 billion.
  • American Online (ex-ticker: AOL): American Online was also in the limelight 20 years ago. In 2000, it even acquired Time Warner and became the nation’s most valuable Internet and media group at that time.
  • Huffington Post: In November 2020, Verizon Media Group sold the most iconic and widely acclaimed, once influential Internet newspaper pioneer in the United States to BuzzFeed (ticker: BZFD).
  • The third largest SSP digital advertiser in the United States.

The winner is too obvious

I want to finish here, and I don’t need to say anything further. Everyone should see that as of May 2021, the media empire wars this round; the media empire built by AT&T is even sufficient to challenge Disney. On the contrary, Verizon is undoubtedly at a disadvantage.

Not only did it lose money, it was just to compete with AT&T and forced to do mergers and acquisitions along the way. It was afraid that it would lag behind its old rival AT&T. The merger strategy was chaotic and it can be said that nothing has been achieved so far. One of the most critical mergers and acquisitions should be AT&T’s successful acquisition of Time Warner in 2018, which has since left Verizon.

Share price performance of two companies in past decade

The following is a chart (from Charles Schwab) of the stock prices of the two companies over the past ten years from May 2011 to May 2021. Please note that after 2018, AT&T (Orange Line) passed antitrust review and determined the acquisition of Time Warner. Since then, the stock price has risen from the long-term entanglement of Verizon (Green Line) and has been rising all the way.

Valuation comparison

As of 5/20/2021, the main stock related data of the two companies are as follows:

AT&TVerizon
Stock Price28.856.72
Market Capital (US$ billion) 205.561 234.949
P/EN/A12.33
EPS-0.344.56
Dividend Yield6.45%4.39%

AT&T will split the media business

AT&T intends to separate all its media businesses, including Warner and Discovery Channel, which is a major event in the industry. After the split, the new company will be the world’s second largest media group after Disney, with 79 million subscribers for streaming video alone (64 million on the HBO video platform, plus 15 million people on the Discovery Channel).

The world’s most indebted company

Although AT&T has also become the world’s most indebted company due to its leveraged acquisition of Time Warner, with debts as high as $181 billion, no one has ever doubted the long-term value of this merger. Of course, this move also burdens the company with a huge interest burden. The interest in 2020 will be as high as 7.925 billion U.S. dollars, which is much higher than the full-year operating income of 6.405 billion U.S. dollars, resulting in a net loss of 3.821 billion U.S. dollars for the company in 2020. Equivalent earnings per share is negative 0.34.

As long as AT&T can solve the huge debt interest (the company has announced that it will start to reduce dividends to 40% of free cash flow), I believe that the success or failure of the two companies in the media empire will affect the future prospects and long-term prospects of the two companies in the future. Discovery’s merger will make AT&T’s media business jump to the world’s third largest streaming media giant, second only to Netflix (ticker: NFLX) and Disney+. Let us keep our eyes open and wait and see!

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