It's like the EV discussion, where a company like RIDE doesn't need to have earnings or rev's similar to TSLA, they just need to carve out their niche and produce earnings.
So will HBO ever be as big as the big 3? probably not, but the HBO name does carry weight, and they do produce worthwhile content. If the leg of TV is via streaming, and HBO produces another show as popular as Soprano's or Game of Thrones, then you will see their #'s jump in a big way.
Some info on T. Current FMV is $36.
A New Chapter in an Ugly Story as AT&T Reaches a Deal for DirecTV
Analyst Note Updated Feb 25, 2021
AT&T has reached an agreement to restructure its U.S. television business, selling a stake in the operation to a private equity fund run by TPG. The deal isn’t large relative to the size of AT&T core wireless and media businesses. The firm disclosed that U.S. television services generated about $4 billion of EBITDA in 2020, equal to about 7% of the total for the year. It likely generated around 12% of free cash flow, a percentage we project to rapidly decline. But we suspect the firm is anxious to beginning putting the DirecTV mistake—and the investor attention it commands—in the rearview mirror. We are maintaining our $36 fair value estimate and we believe AT&T shares are attractive.
In our view, this deal is a win for AT&T given the paucity of options likely available. The deal structure provides the potential to extract more than $16 billion in cash via upfront payments and preferred interest payments from New DirecTV. The actual amount will be lower as AT&T agreed to cover losses on NFL Sunday Ticket through 2022, but it could receive cash equal to around 3.5-4.0 times 2020 EBITDA, albeit over a period of years. We doubt that outside investors were willing to pay a substantially higher multiple to acquire the business outright given recent customer losses.
TPG essentially will get paid around $180 million and receive a 30% interest in New DirecTV for pulling $1.8 billion in cash flow forward for AT&T, while helping to provide legitimacy to allow New DirecTV to raise debt capital and resume as a standalone entity. TPG will only capture meaningful upside for its efforts if it can help New DirecTV stabilize its business and pursue other strategic alternatives, perhaps even facilitating the long-rumored merger with Dish Network’s television operations. In any event, TPG has a strong incentive to make occur quickly to get over the hump of payouts due to AT&T and realize value for its investors.
Fair Value and Profit Drivers | Updated Dec 23, 2020
We are cutting our fair value estimate modestly to $36 from $37 after increasing our expectations for spending on wireless spectrum. We now assume AT&T spends more than $20 billion in 2021 and 2022 on spectrum licenses, primarily at the FCC’s C-Band auction. We expect several of the same trends that have hit AT&T’s businesses recently will remain in place, yielding very modest wireless revenue growth despite increased network capacity. Our fair value estimate equates to roughly 7.5 times our 2021 EBITDA forecast.
In wireless, we expect AT&T will modestly gain market share through 2024. We believe postpaid revenue per phone customer, which bottomed in 2018 with the transition to unsubsidized rate plans wrapping up, will grow modestly over the next several years amid a relatively stable competitive environment. We estimate AT&T generates more than $1 billion in revenue annually from connected devices, such as cars. We model this revenue doubling over the next five years, but this estimate is highly uncertain. We expect total wireless revenue will increase 4% annually on average through 2024, with wireless margins holding roughly steady over this period, as pricing rationalization and high-margin connected device revenue offset rising network operating costs. Lumpiness in smartphone sales, which generate no profit, will cause volatility in reported margins.
At WarnerMedia, we expect 2% average annual growth during the 2020-24 period, with revenue down 13% in 2020 but rebounding gradually thereafter. We model growth, absent the rebound from the pandemic, accelerating in later years as HBO Max gains acceptance and offsets weakness in the traditional television business. We don’t have high expectations for the advertising business over the long term, despite AT&T’s efforts to improve ad monetization, as consumer behavior shifts away from ad-supported formats. We also expect that increased investments in content required to fend off newer entrants will pressure margins over time.
With the entertainment and enterprise businesses shrinking, we expect consolidated revenue growth of less than 2% annually over the next five years. We also expect the consumer business will struggle to maintain profitability in future years as the television business continues to shrink. In total, we expect AT&T will produce modest EBITDA margin expansion, with capital spending increasing gradually over the next five years.