(Reuters) - AT&T Inc’s quarterly profit for the latest quarter rose less than expected, held back by its declining satellite TV business, sending the company’s shares down more than 6 percent.
The second-largest U.S. wireless carrier has been reducing its dependency on the phone business with its $85-billion acquisition of Time Warner this year, but it is struggling to grow in the TV market as its satellite business continues to shed customers, while its streaming services have not attracted as many subscribers as analysts had hoped.
AT&T lost more satellite TV customers than Wall Street expected in the third quarter, shedding a net 359,000 subscribers, as viewers move to services like Netflix Inc and Hulu. It lost 251,000 in the same period last year.
Wall Street analysts expected AT&T to shed 245,000 satellite subscribers, according to research firm FactSet.
Meanwhile, DirecTV Now, the company’s “over-the-top” streaming video service that was launched to lure back viewers who had dropped more expensive satellite TV services, added only 49,000 net subscribers in the quarter, much lower than the 296,000 it added last year. Analysts had expected 287,000 net new customers, according to FactSet.
“Satellite TV subscriber losses are accelerating while over-the-top subscription growth has stalled,” said Walter Piecyk, an analyst with BTIG Research.
AT&T has pared back promotional offers for DirecTV Now to focus on reaching profitability, executives said on a conference call to discuss earnings.
“What we’re after is customers who are highly engaged, find the product compelling and use it a lot,” said AT&T Communications Chief Executive John Donovan during the call. “That will lend [DirecTV Now] towards being able to be supplemented by an ad model over time.”
In response to an analyst question about the pay TV business’s contribution to a recovery in the company’s entertainment group, Donovan corrected the analyst and said the recovery would come from the group’s broadband business, implying it would not come from the video business that includes DirecTV.
AT&T shares were down 6.1 percent at $31.01 early Wednesday afternoon.
AT&T gained a net 69,000 phone subscribers in the United States who pay a monthly bill, compared with analysts’ estimates of a net drop of 22,000 subscribers, according to research firm FactSet.
Wall Street analysts watch the so-called “postpaid” subscriber figure because those customers pay a monthly bill and are more valuable to the company.
The new WarnerMedia segment, which includes Turner and premium TV channel HBO, reported revenue of $8.2 billion during the quarter. It did not provide a year-ago figure.
AT&T closed its purchase of Time Warner on June 14 after winning a court battle against the U.S. Department of Justice, which argued that AT&T-owned DirecTV would use Time Warner content to raise costs for pay TV rivals.
A U.S. appeals court said last week it will hear oral arguments on Dec. 6 for the Justice Department’s appeal against the merger.
WarnerMedia recently announced it will introduce a new subscription video service by the end of 2019, anchored by HBO. Within a year, the service will also include original content, WarnerMedia Chief Executive John Stankey previously told Reuters.
Third-quarter net income attributable to AT&T rose to $4.7 billion, or 65 cents per share, from $3.0 billion, or 49 cents per share a year earlier.
Excluding some items, the company earned 90 cents per share, missing analysts’ estimate of 94 cents per share, according to Refinitiv data.
Total operating revenue rose 15.3 percent to $45.74 billion, beating analysts’ expectation of $45.65 billion.
Reporting by Sheila Dang in New York and Akanksha Rana in Bengaluru; Editing by Bill Rigby and Nick Zieminski