The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (Jan 6)

by | Jan 6, 2024 | TSB

To no one’s surprise, the year started on a dour note with the Fab Five down $357 billion for the shortened trading week. Apple was $177 of the $357 billion loss, and both Microsoft and Apple’s value has fallen below $3 trillion. Even with reports that CEO Mark Zuckerberg sold $428 million in Meta/ Facebook shares in November and December (Bloomberg article here), Meta was down a mere $5 billion for the week.

If folks are selling the Fab Five, where are they putting their proceeds? Some of them appear to be going into dividend-producing Telco Top Five equities. Both AT&T (+$5 billion for the week with a closing yield of 6.4%) and Verizon (+$11 billion, 6.6%) had strong starts to 2024. Outside of sentiment, not a lot has changed (although we do think that AT&T had another terrific fiber net adds quarter with rising (up high single-digits) fiber ARPUs, and, as we discussed in this Brief, Verizon’s myPlan is having an impact on their gross additions).

Were AT&T and Verizon oversold after the lead stories came out last summer? Probably so. Is Verizon worth as much as it was at the end of 2022? Yes. Do both have a lot to prove, particularly with respect to steadily growing free cash flows? You betcha.

Unfortunately, the Citi investor conference that usually coincided with CES has been consolidated with another conference and will not yield any parallel insights this year. Overall, news was light this week, with T-Mobile’s addition of Hulu (and transition of customers from ad-free to ad-supported Netflix for free – Tmonews article here) was the only big news item. As we mentioned in the Dec 17 Brief (here), there have been a lot of retirements, and reorganizations and replacements are beginning to occur. Most of ripple effects of organizational changes will take quarters if not a year to manifest into value creation, however.

We continue to think that cable had a terrific wireless net adds quarter, with most of their customers coming from AT&T and Verizon (Fierce Wireless article which points to New Street’s analysis is here). Assuming that trend held, we think that T-Mobile did not blow the door off like they have done in years past, but that they will meet subscriber expectations and post strong cash flow growth (which was used to buy back shares and pay their first dividend).

As we have stated previously, the carrier with the greatest hurdle to jump is Verizon because of the extraordinary lengths they went to in 4Q 2022 to produce positive net additions. AT&T and T-Mobile did not take those steps and instead have the hurdle to jump in the first quarter of 2024.

More in next week’s full Brief. Hope to see you on the CES show floor next week – we will be full of thoughts by then. File is below (note – because we started a new year, not a lot of analysis BUT there is a new tab which provides the support for ten year returns with dividends included for an expanded universe of telecom related stocks).

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