AT&T

AT&T was once one of the most dominant companies in the world, having invented the telecom industry itself. They employed nearly 300,000 employees and were worth hundreds of billions of dollars. But it's not quite the same today. AT&T stock has been cras They've cut their workforce by 130,000 employees and the company was burdened with as much as 180 billion dollars worth of debt. Well, it all went wrong with just one acquisition led by one man. T In 2015, AT&T was led by Randall Stevenson. He'd led the company since 2007 with moderate success. At the end of 2014, AT&T generated 132 billion dollars in revenue and had over 240,000 employees. Most of t He wanted to grow the company into a media conglomerate. Stevenson'strategy was actually fairly simple. AT&T offered customers telecommunications packages with internet and phone plans. He wanted to make their offers even more appealing to customers. Their biggest competitor, Comcast, had recently done the same. They acquired NBC Universal in 2011 for 30 billion and then they began offering their triple play bundle, internet, phone services and, thanks to NBC Universal, television. By comparison, AT&T could only offer internet and phone plans. Despite making half their revenue, Comcast suddenly had a better offering than AT&T and were gaining ground fast. Between 2011 and 2015, Comcast's revenue grew 33. 5% but AT&T only grew about 15%. Stevenson's response? Buying a media company too. He decided on a company called Direct TV, a traditional television company but not a cable company. Instead, they provided TV by satellite. Launching a few satellites into orbit was expensive but un New customers traditionally needed massive cable installations to join. For Direct TV, all customers needed was a small satellite dish so it was easier to install. For AT&T, t It fit in as a part of their bundle deals offering internet, mobile service and satellite TV for a cheap rate. The perfect bundle for new customers. Plus, they could sell t Earlier today, we completed the merger of AT&T and Direct TV. Our combined company will fundamentally redefine our industry and deliver entertainment services to you AT&T acquired Direct TV for $48. 5 billion. In their 2015 annual report, Stevenson said, we closed our acquisition of Direct TV. Combined with our major investments over the past five years in our wireless, fiber and internet protocol networks, we have assembled the pieces to claim leaders He was preparing AT&To take background from Comcast. It would provide new revenue, new growth and remove Comcast's competitive advantage. Unfortunately though, t Let's break down the n Before the merger, Direct TV was growing at a steady rate. From 2007 to 2010, they added about 2. 5 million subscribers. But over the next five years, they only added about 1 million to surpass 20 million. That's a lot of customers but somet It was slowing to a halt. In 2015, the year AT&T merged with Direct TV, Netflix had already acquired 70 million subscribers, 17 million in that year alone. And their revenue had tripled between 2010 and 2015. Now, I'm not saying that AT&T should have bought Netflix but the trend was pretty clear. Streaming platforms Stevenson probably noticed t Netflix wasn't a new TV platform. It was replacing TV altogether. So what happened? W It had just overtaken Comcast's TV network w Though AT&T'success didn't last too long. Its TV services weren't bringing in the profit they hoped for. Then the growth began to wane. Subscribers were leaving Direct TV every day in favor of streaming services. So in 2016, AT&T launched Direct TV Now, a streaming service television hybrid. It showed live broadcasts, channels, sports news and more over the internet and wit But it wasn't enough to reverse the overall trend of people leaving Direct TV. At the end of the day, they offered channels As such, in 2017, Direct TV shared 1 million subscribers. Stevenson, at least outwardly, still remained optimistic. We expect to pick up whatever video losses we have and more than that with Direct TV Now. But the spin-off streaming service wasn't profitable yet. Plus, the more profitable television service was shedding subscribers. Stevenson needed to act. In mid-2018, AT&T raised the price of Direct TV Now by $5 with the hope of profitability. It may have helped profit, but it certainly didn't help growth. In the first quarter, they gained 340,000 subscribers. But in the t But it gets worse. A $48 billion acquisition is a lot. Even for AT&T, they had to take on a lot of debt. They also had to sell off assets to stay afloat. But Direct TV wasn't paying off. Direct TV could even be argued to be the most overvalued acquisition in Somehow, AT&T hadn't noticed the rise of cord cutting, or at least underestimated it. Despite the rise of Netflix, they bought a TV company for about $50 billion. And Direct TV Now was only a tiny service compared to the television service. And it wasn't capturing new customers Yet, with all that said, AT&Then did somet AT&T would double down. They had absurd debt and their services were shrinking. But Stevenson decided to go all in on media. Near the end of 2018, AT&T made its biggest announcement in We're following a major developing story in the communications industry. AT&T has reportedly reached a deal to buy Time Warner for more than $80 billion. T One of the biggest acquisitions in 4 billion. The merger with Time Warner meant AT&T now owned Warner Brothers, CNN, HBO, and many other intellectual properties. Harry Potter, DC Comics, Looney Tunes, Game of Thrones, Adult Swim, Lord of the Rings, the list goes on and on. Even with their debt from Direct TV, the company was now a media powerhouse from a telecom company to a media giant to rival Disney. Would t AT&T might have now had more media assets, but it also had more problems. For one, the merger increased their debt to $180 billion. Not only that, the merger was a bad marriage that looked good on paper and in photographs. The comparison with the Comcast NBC merger almost served as a controlled experiment to show that corporate culture is critical for a merger success or failure. AT&T's culture was more process driven, w Investors weren'too impressed either. After the announcement, AT&T'stock continued on their downward trend from 2015. Despite now owning Time Warner, Stevenson was unprepared for the war that was arising. Streaming platforms were now everywhere and battling for cons AT&T had unexpectedly entered a war zone. To make matters worse, shortly after the merger, many of Time Warner's top management j The head of HBO, Richard Plepler, left for Apple and Jeff Pukes, CEO of Time Warner, retired right after the acquisition, just to name a few. Without strong leaders He had been with AT&T since 1985 as a finance executive, yet he had almost no media experience. Despite spending over $85 billion on Time Warner, AT&T didn't really know what to do with the company. The industry was rapidly evolving with new competitors appearing left and right, though AT&T focused more on using Time Warner's content to boost its telecom services than on building a strong streaming platform. They pushed HBO for more content to increase profitability, w To make matters worse, Direct TV was continuing to decline. Their 26 million subscribers had now dropped to 15 million in 2021. To put it bluntly, you can't just acquire your way out of a problem. They went from moderate profitability to increasingly unprofitable. Finally, enough was enough, at least for Stevenson. At the beginning of 2021, Randall Stevenson retired as the AT&T CEO. When he took over AT&T in 2007, the share price was $39. 40. When he left, it had dropped by 24%. For comparison, the S&P 500 had grown 85% in that same time. The revenue that year was $134 billion, which sounds 7% less than 2015. Before they bought Time Warner for 85 billion. AT&T was undoubtedly shrinking. Comcast was doing great in comparison, but still losing ground to streaming services. Their revenue had j The n AT&T was in a bad position. They were losing money and a market share. It needed to get t So AT&T went into damage control. The easiest way to fix t In April 2022, Emerge Time Warner, now rebranded as Warner Media with the Discovery Inc. It would be a standalone company, completely separate from AT&T. T Funds AT&T desperately needed. Then AT&T sold a 30% stake in direct TV to TPG Capital. Another injection of cash, but it would allow them to continue offering some TV and streaming in its packages. T At least that's what executives thought. T In the second quarter of 2022, direct TV lost over 400,000 subscribers. The service had just over 12 million left, losing 13 million or over half in eight years. They had even fallen be They also fell be Finally, AT&T gave in. AT&T cut the cord, or rather the satellite. They sold the remaining 70% stake in direct TV. They had bought direct TV for $48 billion, but they sold it for about $7. 6 billion. They had lost $30 billion on the distraction hurt their core business as well, but late is better than never. This In 2024, the stock price surged 35%. Stevenson was gone, and AT&T was done with the media industry. The company is now pledging $40 billion in buybacks and dividends to rebuild Shareholder Trust, trust that will be essential going forward. On top of t In 2015, if Stevenson had a bit more foresight, he might have seen the giant red flag around direct TV and television. Direct TV wasn't necessarily failing, but in the bigger picture, cons The growth was declining w The solution after getting into that mess was definitely not to acquire another giant TV company for even more money. It's incredible how one CEO can ruin a company, but Stevenson isn't alone. Watch t But until then, I'm Hari, and I'll see