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AT&T: a dark horse of a subscription world
2020-05-27 • Updated
You’ve probably missed this news while being too busy following Netflix. Here it is: this week, on May 27, the longtime cable TV provider AT&T will launch HBO Max – a new streaming platform. This is indeed a big announcement for a company, which is about to enter a crowded streaming market conquered by Disney, Amazon Prime, and, of course, Netflix. What will it mean for the AT&T stock?
A shed of light
The American company has come through tough times recently. The first reason for that is the declining number of cable and satellite subscriptions. According to surveys, more than 60% of Americans have cut or are planning to cut the cable TV subscription. Streaming platforms turn out to be cheaper than regular TV. The coronavirus outbreak worsened the situation even more with an absence of live sports – the only reason most Americans still own a cable subscription. Being the largest company in the telecommunication industry, AT&T suffered from a subscription loss. In the earnings first quarter, the company revealed that the number of subscribers to its services declined by 897 thousand.
The new HBO Max platform is aimed to solve this problem for AT&T. Due to the large chain of partners and many strategic acquisitions AT&T has, the service will provide access to several pay-tv providers including TNT, TBS, TruTV, HBO, and others. Let's not forget the $108.7 billion merger AT&T made with WarnerMedia. To keep its clients interested, AT&T plans spending $4 billion in HBO Max over the next several years to create new content.
The upcoming release comes in line with CEO Randall Stephenson's plan for increasing the stock price of AT&T. The company plans to focus on HBO Max as well as on the new top DirecTV replacement.
The competitors are still winning
The main question is whether the new platform by AT&T will be more attractive to customers than the services by its main competitors (Netflix and Disney)? Analysts doubt about that. Firstly, HBO Max will be more expensive than the cheapest offers by other platforms. While HBO Max costs $15, Disney+ is provided for $7 a month, and Netflix’s cheapest tariff is $9 per month. At the same time, the agreements between AT&T and its partners make it impossible to lower its pricing. Thus, some experts see HBO Max have a low impact on the company’s revenue for several years.
Nevertheless, the new platform is expected to stop the “bleeding” of the stock, which has fallen from the highs above $39.5 since the beginning of the year and has been trading below $30 for a while.
What happens to the price of AT&T?
Despite the uncertain future, the initial reaction of the market to the announcement of a new platform has been positive. On Tuesday, the price of the AT&T jumped above the 50-day SMA to the resistance at $31.2. The next resistance for the stock will be placed at $31.9. Bears will be looking for an opportunity at the $30 level, where they will be expecting a slide lower to $28.9.
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Bearish Scenario: Selling below 22.65 with TP1: 22.34 (intraday) and TP2: 22.02 (swing). Bullish Scenario: Buying above 22.70 with TP1: 22.90.
Intraday and swing scenarios based on price action and volume profile.