AT&T Takes Wall Street Hit, Analyst Downgrades on Debt and Content Spend Concerns

Telecom giant has “many mouths to feed,” including HBO, after closing Time Warner buyout

AT&T shares took a 2.16 percent hit on Wednesday, after a Wells Fargo report raised concerns the company will be hampered by its “many mouths to feed,” following its $85.4 billion buyout of Time Warner.

Wells Fargo lowered the company’s target price from $40 to $35 a share, as analyst Jennifer Fritzsche pointed to AT&T’s need to invest in several new properties, including HBO,  as AT&T works to integrates WarnerMedia (the rechristened Time Warner).

“There are many mouths to feed. These include but are not limited to: FirstNet deployment, HBO investment, and fiber deployment within its wireline footprint,” said Fritzsche in the report. “Simply put – [AT&T’s] capital is being pulled in many directions.”

AT&T’s obligation to its TV and film wings will sidetrack the company from investing in its wireless business, according to Wells Fargo, at a time when its competitors have “doubled down” on the sector. And even if AT&T were to throw the $1.5 billion it saves in cost synergies  into its content budget, it would still fall “33 percent shy of [Amazon] and $5 billion less than that of [Netflix].” Amazon’s content spend is around $5 billion, while Netflix has pegged its budget at $8 billion or more.

Compounding matters for AT&T is its massive debt. The telecom giant is carrying more than $190 billion in debt — much of it taken on to finance its Time Warner deal — making it the “world’s largest non-bank debt issuer,” per Wells Fargo.

AT&T closed at $32.66 a share on Wednesday, down from down from $33.40 on Tuesday. The company has traded near the $32.50 mark since its Time Warner merger closed in June — marking about a 16 percent drop in share price since the start of 2018.

The Department of Justice filed an appeal of the AT&T-Time Warner deal last month, arguing it would  curtail innovation and hurt competition if approved. AT&T chief executive Randall Stephenson doesn’t sound too worried, saying there’s only a “remote” chance the deal is blocked. The appeal will come to court in Washington, D.C. in the fall.