AT&T’s long-term outlook is still good

The Motley Fool’s Take

When telecommunications giant AT&T released its second-quarter results in July, both revenue and adjusted earnings beat expectations, but the company’s projections put investors in a bad mood.

AT&T added 813,000 postpaid phone subscribers in the second quarter and enjoyed a 1.1% year-over-year increase in average revenue per user as customers moved to unlimited plans.

Its fiber business is also doing well, with 316,000 new fiber customers in the quarter, bringing the total to 6.6 million and helping boost broadband revenue by 5.6%.

So what is beef? Well, AT&T now expects to produce $14 billion in free cash flow for the year, down from the previous outlook of $16 billion. This is not a sign of business contraction, but rather that many customers are slightly delaying payments in a tight economy. Wireless service has become as essential as home internet access, so it’s unlikely that many customers will drop service completely in difficult times.

Meanwhile, AT&T is better able to weather the turbulent times now that it has significantly reduced debt after its Time Warner spin-off. Its stock also had a recent dividend yield of 6%. Although AT&T is not immune to an economic downturn, it has been through such cycles before. The drop in free cash flow this year is disappointing, but that doesn’t change the long-term story.

ask the fool

From GK to Londonderry, NH: I’ve heard many economists worry about “stagflation” — what is it?

The madman responds: Stagflation, combining the words “stagnation” and “inflation”, refers to an economic environment characterized by slow growth, high inflation and high unemployment. The Corporate Finance Institute notes: “Such an adverse combination is feared and can pose a dilemma for governments, as most actions aimed at reducing inflation (such as raising interest rates) can increase the unemployment rate. , and policies designed to reduce unemployment (such as lowering interest rates) can make inflation worse.

Many economists aren’t too worried about stagflation in the United States right now. On the one hand, unemployment is currently very low, recently at 3.2%. And inflation, while high, has shown signs of easing, with gasoline prices and airfares having recently fallen.

From BN to Davenport, Iowa: Who are the major players trading on the stock exchange, driving prices up and down?

The madman responds: Many are retail investors who place small buy and sell orders through brokerage houses. There are also large institutional investors who do a lot of trading, such as banks, credit unions, pension funds, mutual funds, hedge funds, and insurance companies.

Stock prices rise or fall based on supply and demand. When a stock is in high demand, many will want to buy and its price will rise. If it falls out of favor, there will be many sellers and the price will fall until it reaches levels where there are buyers.

Big players can benefit from sophisticated research departments, but smaller investors also have advantages. For example, we can invest in a big small business early, before the institutions start to accumulate. Once they start buying a lot of stocks, it can push up its stock price, which benefits smaller, early-stage investors.

school of fools

If you’re looking to invest in healthy, growing businesses, you’ll need to learn about margins. There are several types of margins to be aware of.

Profit margins are easy to calculate once you get your hands on a company’s income statement (sometimes called an income statement); it reports revenue and profit (among other things) over a period of time, such as three months or a year. You can probably find these financial statements in the “investors” section of a company’s website. Otherwise, sites such as Finance.Yahoo.com allow you to search for them.

Let’s review Coca-Cola’s 2021 income statement. At the top is total revenue of $38.7 billion. As you progress, you will see various costs subtracted from income, leaving different levels of profit. The item you’ll find just below revenue is “cost of goods sold” (sometimes abbreviated as COGS, or referred to as cost of revenue) – the cost of providing products or services. For Coca-Cola, it’s $15.4 billion. Subtract the COGS from the total revenue and you’ll get a gross profit of $23.3 billion.

To find gross profit margin, which reflects the percentage of a company’s revenue after subtracting direct expenses such as labor and materials, simply divide gross profit by revenue. Dividing $23.3 billion by $38.7 billion yields a gross margin of 0.60, or 60%.

Then the remaining costs of running the business, such as utility bills and advertising expenses, are subtracted, leaving operating profit (also called operating profit). For Coca-Cola, it’s $10.3 billion. Divide that by revenue and you’ll get an operating margin of around 27%.

Finally, after factoring in things like taxes and interest payments, we come to net income, near the bottom of the statement. That of Coca-Cola is 9.8 billion dollars. Dividing that by revenue yields a hefty 25% net profit margin, reflecting how much of every dollar of sales Coca-Cola keeps as profit.

Learn more about how to invest in the “fundamentals of investing” corner on Fool.com.

My smartest investment

From DP, online: My smartest investment? Well, given that I met my wife through Match.com back in the Oregon Trail online dating days (circa 2004) – and have achieved a 345% stock return since I invested in it – I would say Match Group was my best investment, hands down.

The madman responds: It’s hard to argue with this kind of smart investment!

Connecting with Match.com may have been your best investment even if you didn’t buy the stock. It’s worth pointing out that while a 345% return looks great indeed, knowing how long you’ve held the stock would allow us to determine exactly what your average annual growth rate has been. If you earned 345% over five years, for example, you would average 35% per year. If your 345% gain had been in a stock you had held for 20 years, your average annual gain would have been around 8%, a little below the average return of the S&P 500.

Today, Match Group is an online dating powerhouse, hosting not only Match.com but also Tinder, Hinge, OkCupid, PlentyOfFish, and OurTime, among other sites. (Tinder is the most downloaded dating app in the world.) It brings in over $3 billion a year and has over 16 million paid subscribers.

Who am I?

My roots date back to 1930, when I was founded to provide seismographic data to the petroleum industry. During WWII I focused on submarine detection devices – and after that transistors, integrated circuits, pocket calculators, radars and more. I sold my defense division to Raytheon in 1997. Today, based in Dallas and with a recent market value exceeding $160 billion, I am a global semiconductor specialist; I have 15 manufacturing sites around the world and produce tens of billions of chips per year. I manufacture approximately 80,000 products for over 100,000 customers and employ over 30,000 people. Who am I?

Don’t remember last week’s question? Find it here.

Answer to last week’s quiz: World Paramount

Motley Fool: Microsoft is a master of diversification

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