WarnerMedia Spinoff Will Mark ‘Starting Line of a New Era’ for AT&T, CEO Says

On the cusp of spinning off WarnerMedia — ending AT&T’s ill-fated foray into the entertainment biz — telco chief CEO John Stankey touted the company as getting into fighting shape to succeed in its core wireless and broadband sectors.

AT&T released updated financial guidance on Friday ahead of its investor day presentation, fleshing out its post-WarnerMedia strategic priorities. Separately, Discovery shareholders also Friday are set to vote on whether to approve the WarnerMedia deal. Pending that vote and final regulatory approvals, the $43 billion Discovery-WarnerMedia transaction is expected to close as soon as mid-April.

“Now that the close of the WarnerMedia deal is approaching, we are near the starting line of a new era for AT&T,” Stankey said in prepared remarks. “The transformation we’ve undergone over the past 18 months while delivering outstanding operational results has brought us to this point. We will be a simpler, more focused company with the intent to become America’s best broadband provider.”

AT&T plans to boost investment in its strategic areas of growth — 5G and fiber — and “at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders,” Stankey said.

With the spinoff of WarnerMedia and combination with Discovery, AT&T will receive $43 billion and AT&T shareholders will receive stock representing approximately 71% of the new Warner Bros. Discovery. Existing Discovery shareholders will own approximately 29% of the new company on a fully diluted basis.

In the past year, AT&T has also moved to shed other non-core assets. That included inking a deal to sell Xandr to Microsoft in December 2021; selling WarnerMedia’s Playdemic mobile games app studio to EA for $1.4 billion; selling Vrio, AT&T’s Latin America video operations; closing a deal July 2021 with TPG to form DirecTV Entertainment Holdings, comprising the telco’s U.S. video business (including DirecTV, AT&T TV and U-verse video services); and selling the Crunchyroll anime business in Q3 2021 to Sony for $1.2 billion.

During its investor day presentation, AT&T reiterated guidance for 2022 and provided outlook for 2023, on a pro-forma basis excluding WarnerMedia and Xandr.

For 2022, AT&T expects “low single-digit” revenue growth up from $118.2 billion on a pro-forma basis in 2021, driven by at least 3% growth in wireless service revenue and at least 6% growth in broadband revenue. It forecast adjusted EBITDA of $41 billion-$42 billion, compared with $40.3 billion on a pro forma basis in 2021, even given about $600 million in “headwinds” from 3G network shutdown costs and the absence of credits from the FCC’s Connect America Fund (CAF) II. AT&T expects adjusted earnings per share of $2.42-$2.46, versus EPS of $2.41 on a pro-forma basis in 2021.

For 2023, the company forecast continued low single-digit growth on the top line; adjusted EBITDA of $43.5 billion-$44.5 billion, including approximately $1.5 billion in additional “cost transformation savings”; and adjusted EPS of $2.50-$2.60.

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