Why Verizon Is Up and AT&T Is Still Down: Jeff Kagan

Jeff Kagan  |

Image source: Verizon

The good news is that both Verizon (VZ) and AT&T (T) are showing solid wireless growth after a rough and tumble past decade trying to squeeze into other areas of business. That good news means both should be seeing their share price rising. So, why is it that only Verizon is rising and AT&T is still struggling?

The reason may be that, while both made big mistakes during the past decade, it looks like recovery may be quicker at Verizon. AT&T went further and deeper into other industries and that will not only be costly to the company but also take it longer to sort through and exit that world.

AT&T will recover, but it will take longer than Verizon

I believe AT&T will recover, but it will take much longer, and it will have to work harder to convince the investor marketplace that it is on the right path once again.

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Verizon is a strong wireless and wireline telecom player, but it went off track several years ago in search of growth when it acquired companies like Yahoo and AOL.

Verizon went off track with Yahoo and AOL

This was wrong right from the start.

When a company makes acquisitions to show growth, it should focus on acquiring growth companies. AOL and Yahoo, however, were not growth oriented. In fact, their growth had crested, and they were both struggling when they were acquired.

That is a very difficult hurdle at the very least and often impossible to turn around.

You see, all companies are on some part of the growth wave. They are either growing, or they have crested or they are on the falling side.

The Growth Wave: Rising, cresting or falling

Both Yahoo and AOL were on the falling side of the growth wave before they were acquired by Verizon. Verizon somehow thought it could magically transform these companies back to the growth side like Houdini.

Obviously, it failed.

Fortunately, since these companies never really fit or became important pieces of the puzzle for Verizon, getting rid of them did not impact the company as much.

That’s why Verizon seems to be recovering more quickly compared to AT&T.

The good news for Verizon is that the market sees them refocusing on wireless and 5G, and that means it has an enormous growth opportunity ahead.

AT&T WarnerMedia went off track moving into entertainment and news

AT&T spent the last decade moving into the television space. First with Uverse, then by acquiring DirecTV and ultimately by acquiring what became WarnerMedia, with Warner Brothers Studio, CNN and so much more.

The companies AT&T acquired were not strong, growth companies. They were not on the falling side of the growth curve like Verizon, but they were all struggling for a variety of reasons.

AT&T figured that, since news and entertainment would always be a part of our culture, it could single handedly transform these industries for the future if it could only reinvent this entire sector,

Additionally, it could combine them with its wireless, telecom and Internet businesses to supercharge its investment.

The vision behind this was that one plus one would ultimately equal three or four. If it worked, it would have been a victory for Ma Bell...

... but it did not work.

COVID-19 derailed highly leveraged AT&T WarnerMedia plans

The commitment was there from AT&T, and there was progress for a while, but it all collapsed and with COVID-19, it quickly headed for the exits.

COVID-19 hit the economy hard and grounded nearly every ambition from nearly every company in nearly every sector for a while.

At that time, AT&T was highly leveraged and that meant it required revenue to keep the operation going.

Revenue which ground to a halt under the coronavirus pandemic.

So, AT&T is now cutting its expenses to the bone and spinning off its new companies and lowering its growth ambitions.

It's spinning off Uverse, DirecTV, WarnerMedia, everything... while keeping its core business of wireless, telecom and Internet.

By cutting costs to bone, AT&T is hurting itself further

While cutting costs and getting back to basics like 5G wireless is the right move for AT&T to take in today’s market, the path it is taking is causing even more, long-term damage.

By cutting costs to the bone, AT&T is hurting itself even further.

This needs to stop if AT&T wants to recover sooner rather than later like Verizon is doing.

Qualcomm, Huawei, Ericsson, Nokia, Cisco, Dell, Oracle, Intel in 5G

All that being said, both Verizon and AT&T showed growth in wireless, and that is good news.

5G wireless is a segment which is the important nervous system that will empower the transformation of every industry worldwide over the next decade.

5G wireless growth will not only be important and good news for AT&T and Verizon, but will also help companies like Qualcomm, Huawei, Ericsson, Nokia, Cisco, Dell, Oracle, Intel and many others.

It will also fuel industry changes like automated driving, telehealth and much more.

Verizon and AT&T are key players in this growing marketplace as everything continues to change and transition.

5G wireless changing industries like automotive and healthcare

Since AT&T and Verizon are both key players in this space and both are showing growth in wireless and 5G, you would expect both would show a rise in stock value.

So, why is it that only Verizon is rising while AT&T is still struggling?

Perhaps the reason is Verizon did not go as deep and transform its business as much with AOL and Yahoo as AT&T did with WarnerMedia.

Since AT&T went deeper, it will take the company longer to recover.

Today, both Verizon and AT&T are actively transforming themselves and focusing on their growth opportunity in wireless.

I think AT&T will take more time to spin off WarnerMedia assets and get back to 5G wireless as its core business.

AT&T will ultimately recover and start being attractive as an investment again.

I believe both Verizon and AT&T have always been leaders, and they will continue to be leaders going forward in wireless.

Both Verizon and AT&T are on road to recovery

This rocky road ahead for AT&T was a self-created obstacle course, and its solution to battle this obstacle course is extreme, even harmful.

I think the company's attempt to cut off a leg as a cure, when the problem was only in one toe, will lead to more problems than it necessarily had to face.

I think AT&T will eventually recover and start to rebuild. I only wish it would use a scalpel like a surgeon, rather than a hacksaw like Michael the Halloween monster.

The good news is it finally looks like both Verizon and AT&T are getting back on track. The difference between these two recovery approaches will make a difference in how quickly each of them recover.

 

Jeff Kagan is an Equities News columnist. Kagan is a Wireless Analyst, Technology Analyst and Commentator who follows Telecom, Pay TV, Cloud, AI, IoT, TeleHealth, Healthcare, Automotive, Self-Driving cars and more. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan and on LinkedIn at www.linkedin.com/in/jeff-kagan/.

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Equities News Columnist: Jeff Kagan

Source: Equities News

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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