There's a school of thought that says job cuts are good for a company's share price because it demonstrates that the company is willing to make the “tough calls” to improve the bottom line. If that's the case, then AT&T (NYSE:T) should be in line for some big gains of its own as the WarnerMedia arm of the company is set to stage a layoff of about 7% of its entire workforce.
A Major Change in Plans
The memo that was released, describing the company's new plan, basically spells out just what we've been seeing for the last few months: WarnerMedia is pulling in and circling the wagons around streaming media, which is about the only real source of entertainment left since movie theaters are on their last legs due in part to the pandemic. The job cuts are targeting redundancies, reports note, and allowing WarnerMedia to put more behind HBO Max, which is now pretty much the company's leading tool when it comes to streaming video.
The move was sufficient to drive the stock up 1.9% immediately after, though the company was previously seen trading at costs around a five-year low, reports noted. What's more, the bump received shortly after the layoff announcements didn't help the company for long, as the pre-market trading gains were subsequently lost in the early trading day. There are signs of recovery coming in, but the share price is still well below yesterday's close.
Interestingly, a little over a week ago, AT&T was seen actively reconsidering its stake in several of its own entertainment options. Its minority stakes in AT&T Now, U-Verse, and DirecTV were all being considered for sale, reports note, a notion which would be in keeping with potential plans to put all its entertainment eggs in the HBO Max basket. Given that its total of legacy TV subscribers has been in decline for some time now—the latest quarter saw the company off about 16% of what it was the same time last year—this may be AT&T's attempt to cut bait rather than keep fishing in a pool of declining fish.
Firing Peter to Pay Paul?
A second report, though, will likely prove good news for investors, at least in the short term. Reports suggest that AT&T has an eye on a hiked dividend for the quarter, going up $0.01 to $0.53 per quarter. AT&T's status as a top-notch dividend provider has long been established, to the point where its recommendation is almost an afterthought.
The analyst community, meanwhile, has an increasingly mixed perception of AT&T's moves, according to our latest research. Six months ago, the company had one “sell” rating, 10 “hold” ratings, and nine “buy” ratings. Today, meanwhile, the company has two “sell” ratings, 13 “hold” ratings, and 12 “buy” ratings, which proportionally is only slightly more bearish than seen back then. The price target, however, has slipped substantially, going from $39.25 six months ago to $34.21 today. In perhaps the strangest revelation, there hasn't been a change in assessment from analysts since early August, when Deutsche Bank lowered its price target from $38 to $37, and when, a day earlier, Royal Bank of Canada hiked its target from $24 to $25.
All A Part of the Field
AT&T's move to focus on streaming video isn't outlandish. We've already seen Disney (NYSE:DIS) circle its wagons around streaming, and given that AT&T is almost the same as Disney—AT&T has DC, Disney has Marvel, AT&T has Warner, Disney has, well, Disney, and so on—on the entertainment front, comparable moves should be expected. It's a recipe for lower profitability, certainly; with Disney especially we've seen how a reliance on streaming at the expense of theatrical distribution is going to drive down revenue. We know that a single blockbuster theatrical release makes in a weekend what a streaming service might make in a month or more, and that's just for one film.
The fact that AT&T might be bolstering dividends while it fires employees is terrible optics, but it demonstrates a commitment to investors that's especially hard for investors to pass on. The fact that AT&T is firing employees at all, meanwhile, is proving its commitment to its product line and any hope it has at profitability. It's unclear, as yet, how this will all turn out—there certainly seems to be a push to get movies back in theaters and make that kind of money again—but AT&T is out to be a player in this field, and is making the moves necessary to be so. The human cost is massive, but its survival may be at stake.