Why Is AT&T Holding the Dow Back Today?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

AT&T is the worst performer on the Dow Jones Industrial Average today. The telecom reported third-quarter results last night, and AT&T shares plunged as much as 2.9% overnight on the news.


The report itself wasn't terrible. In fact, it was outright good news. AT&T reported total sales of $32.2 billion, a 2.2% year-over-year increase that was within a rounding error of meeting analyst targets. On the bottom line, $0.66 of adjusted earnings per share came in a penny above Wall Street estimates. That's a 6.5% annual growth rate -- stronger than the top-line jump, thanks to a generous share-buyback program.

And yet, AT&T's stock has faltered. What's going on here?

Losing ground to Verizon
AT&T saw just 363,000 new wireless contract subscribers this quarter. That's more than double the year-ago period's additions but weak compared to Verizon , which recently reported 927,000 new subscribers for the same period.

In other words, Verizon is wiping the floor with AT&T when it comes to attracting new customers. That's never a good sign for what's coming in future quarters.

What's next?
Losing the subscriber race to Verizon in one quarter is hardly the end of the world. AT&T still boasts 109 million wireless customers, including 72 million of the high-margin postpaid variety. Moreover, AT&T sold smartphones to 1.2 million new subscribers this quarter. The company is losing a ton of accounts on voice-only contracts. That's not a bad trade-off, given the much fatter margins of smartphone-class data plans.

In the end, I don't expect this minor discount on AT&T shares to stick very hard. Come back next week, and you'll find it difficult to discern any lasting effects on AT&T stock prices from this hiccup.

The long-term story is still the same: AT&T battles Verizon for American wireless supremacy, while lesser lights regroup around the feet of these two giants. The Verizon-AT&T duopoly may gain some serious competition in 2014 as this year's consolidating telecom buyouts start bearing real fruit, but the third quarter showed no signs of harmful ankle-biting.

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The article Why Is AT&T Holding the Dow Back Today? originally appeared on Fool.com.

Fool contributor Anders Bylund has no position in any stocks mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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