AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) are often compared by investors as the same sort of companies. They both dominate communications in mobile and terrestrial phones and data plans. But after that, there has been a clear difference in how Verizon and AT&T are moving their businesses.
Both companies had already gotten into content delivery to compete against cable. AT&T then went out and acquired DirecTV and has been expanding in Latin America. Verizon acquired AOL and is in the process of acquiring Yahoo. These are different paths with a common goal: finding the next leg of growth.
It goes without saying that equity analysts and credit ratings analysts often look through entirely differently sets of eyes. 24/7 Wall St. took a look at a credit ratings report from this week and at outside data from Thomson Reuters to see what the equity analysts are viewing. What stands out is that AT&T has outperformed so far in 2016, but there are differing expectations here for what lies ahead.
This week’s Standard & Poor’s report talks about how the paths of AT&T and Verizon differ. The view from S&P is that AT&T’s $14 billion infrastructure investment, its expansion in Mexico and its suite of new products may drive stronger revenue growth in comparison to rivals like Verizon. Still, S&P sees both AT&T and Verizon facing obstacles and opportunities.
This diversification of revenues and opportunities will be paramount in the coming years. After all, there has been a secular decline in wireline telecom, and even the wireless business has, at least for the most part, peaked in America. Hint: how many adults and teenagers do you know who do not have a phone?
S&P Global Ratings believes that AT&T and Verizon are both taking different roads in their pursuits for growth. There are potential benefits from new technologies and recent acquisitions, and then there are the device installment plans.
S&P’s Allyn Arden said:
AT&T is diversifying its overall revenue base by expanding internationally and creating its own over-the-top mobile to deliver video content over the Internet. The company is also leveraging its national video platform obtained via its DIRECTV acquisition, while investing in fiber to improve its network capabilities.
AT&T’s expansion into Mexico and the DirecTV mobile video product looks highly promising. The company’s $14 billion of investments from 2012 through 2015 to upgrade its network capabilities will ultimately offer a more robust experience to its customer base.
On Verizon, Arden noted:
Verizon, in contrast, divested some of its wireline business assets, while increasing its presence in mobile video distribution, digital media, and the Internet of Things.
On the other hand, Verizon’s mobile video and digital media strategy has yet to produce significant results, and it may be challenging to yield strong revenue growth longer term, given the company’s limited experience in these businesses.
As far as which is best, S&P believes that both strategies offer some revenue growth potential. They also both carry some risks and long-term uncertainties. It is important to realize that perhaps focusing on revenues may not be the only metric that matters. S&P’s report views AT&T’s operating strategy as being more favorable than Verizon’s operating strategy. Still the caveat here is “at least for the next couple of years.”