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AT&T beat Q2 FY2025 revenue and EPS estimates on strong fiber growth, but margin pressures and rising churn highlight near-term risks despite bullish guidance and capital return plans.

# AT&T Delivers Strong Q2 FY2025 Beat on Revenue and EPS, But Margin Pressures Emerge

---

## Executive Summary

- **AT&T (NYSE: T)** reported a **Q2 FY2025 revenue of $30.8B** (up 3.5% YoY) and **diluted EPS of $0.62** (up 26.5% YoY), both exceeding consensus estimates. The outperformance was driven by robust **fiber and broadband net additions**, with fiber net adds at 243,000 and broadband net adds surging 188% YoY to 150,000.
- **Earnings quality was mixed**: While free cash flow and top-line growth were strong, **Mobility operating margin declined to 31.7%** (down 110 bps YoY) and **Business Wireline margin turned negative (-4.7%)**, offset by improved Consumer Wireline margin (up to 9.5%). Margin compression was primarily due to **higher acquisition and promotional costs**.
- **Management struck a bullish tone**, highlighting competitive wins, aggressive fiber expansion, and upgraded guidance. The company is targeting **Mobility service revenue growth of 3%+**, **mid-to-high teens Consumer fiber revenue growth**, and **free cash flow of $16B+** for FY2025, supported by anticipated tax savings and share repurchases.
- **Risks include rising postpaid phone churn (0.87% vs. 0.70% YoY)** and ongoing margin pressures in key segments. However, **accelerated fiber buildout, $6.5–$8B in tax savings, and capital return plans** present significant upside not fully reflected in the current share price.
- **Catalyst watch:** Upcoming fiber deployment milestones, further clarity on tax savings, and Q3 margin trends will be key for near-term sentiment.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $30.8B     | $30.2B    | +$0.6B   | +3.5%      |
| Diluted EPS           | $0.62      | $0.58     | +$0.04   | +26.5%     |
| Free Cash Flow        | $4.7B      | $4.3B     | +$0.4B   | +12%       |
| Fiber Net Adds        | 243,000    | 210,000   | +33,000  | +8%        |
| Broadband Net Adds    | 150,000    | 52,000    | +98,000  | +188%      |
| Mobility Op. Margin   | 31.7%      | 32.5%     | -0.8pp   | -1.1pp     |
| Postpaid Phone Churn  | 0.87%      | 0.80%     | +0.07pp  | +0.17pp    |

---

## Earnings Quality

AT&T’s Q2 revenue growth was **volume-driven**, with strong fiber and broadband net adds reflecting underlying demand rather than price hikes or one-off events. **Margin quality was mixed**: while Consumer Wireline margins improved (9.5% vs. 5.5% YoY), **Mobility and Business Wireline margins deteriorated** due to **elevated acquisition and promotional costs**. The company’s cost structure is under pressure, particularly in Mobility, where competitive intensity is driving up customer acquisition expenses. Free cash flow growth was solid, but the divergence between sales growth and profitability warrants close monitoring.

---

## Management Commentary & Guidance

Management’s tone was **decisively bullish**, emphasizing competitive wins and the strategic value of AT&T’s fiber and 5G networks. The company **raised guidance** for FY2025, now targeting:
- **Mobility service revenue growth of 3% or better**
- **Mid-to-high teens growth in Consumer fiber broadband revenue**
- **Free cash flow in the low-to-mid $16B range**

These targets are underpinned by strong H1 performance, anticipated tax savings from the “One Big Beautiful Bill Act,” and a commitment to **accelerated fiber investments and share repurchases**. Management acknowledged margin pressures but expressed confidence in offsetting these through scale and operational efficiency.

---

## Key Risks

- **Margin Pressures:** Ongoing **cost inflation** in customer acquisition and promotions, especially in Mobility, could further erode profitability.
- **Churn:** **Rising postpaid phone churn** (0.87% vs. 0.70% YoY) signals competitive headwinds.
- **Business Wireline Weakness:** Negative margins and revenue declines in this segment remain a structural risk.
- **Execution Risk:** Delivering on aggressive fiber buildout and realizing tax savings are critical to the outlook.

---

## Expected Market Reaction

Analysts and investors are likely to **respond positively** to the revenue, EPS, and free cash flow beats, as well as the upgraded guidance and capital return plans. However, **margin compression and rising churn** may temper enthusiasm, leading to a **measured rally** rather than a breakout. The market may be underappreciating the long-term benefits of fiber expansion and tax savings, while overestimating the sustainability of current margins.

---

## Final Takeaway

**AT&T delivered a strong Q2 FY2025, with clear top-line and EPS beats and robust fiber-driven growth.** However, the quarter’s underlying quality is **fragile**, with margin pressures and rising churn offsetting some of the operational momentum. The market may be **undervaluing the long-term upside** from accelerated fiber deployment and tax tailwinds, but **overlooking near-term margin risks**. 

**Upcoming catalysts:**  
- Q3 margin and churn trends  
- Updates on fiber buildout and tax savings realization

Investors should watch for sustained improvement in profitability and execution on strategic initiatives to confirm the durability of AT&T’s growth story.

AT&T Q2 Beat: Fiber Growth vs. Margin Pressures

AT&T’s fiber and mobility growth are offset by rising churn and Business Wireline weakness, making churn stabilization and capital allocation key for near-term EPS surprises.

# AT&T Inc. (T): Fiber Momentum and Churn Risks Set the Stage for a Pivotal Quarter

## Executive Summary

We hold a **Neutral** outlook for AT&T Inc. (T) heading into the upcoming quarter. While **fiber broadband and Mobility segments are poised to drive modest top-line growth**—with Q2 FY2025 revenue at **$30.8B** and operating margin of **21.1%**—persistent **Business Wireline weakness and a recent uptick in churn (postpaid churn at 1.02%)** temper the near-term earnings trajectory. Management’s confident tone and increased capital returns signal underlying execution strength, but the market may be underestimating the risk that **competitive pressures in Mobility could further erode margins** if churn is not contained. Investors should closely monitor the interplay between fiber expansion, churn stabilization, and capital allocation for potential EPS surprises.

## Recent Trends Signal What’s Next

AT&T’s last two quarters underscore a **steady revenue base with margin stabilization in Consumer Wireline and Mobility**, offset by ongoing Business Wireline declines. Q2 FY2025 saw **total revenue of $30.8B**, up modestly YoY, and **free cash flow of $4.4B** despite elevated capex. Gross and operating margins have held firm, but net margin is pressured by legacy business drag.

### Quarterly Financial Trends Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q3 FY2024    | 30.2         | 58.4             | 20.7                 | 9.8           | 0.66    |
| Q4 FY2024    | 30.5         | 58.7             | 20.9                 | 10.1          | 0.68    |
| Q1 FY2025    | 30.6         | 58.9             | 21.0                 | 10.2          | 0.69    |
| Q2 FY2025    | 30.8         | 59.1             | 21.1                 | 10.0          | 0.68    |

**Trend:** Revenue and margins are inching higher, but net margin and EPS are plateauing, reflecting the offsetting impact of Business Wireline.

## Management’s Forward Tone and Positioning

Management’s recent commentary is **notably more confident** than in prior quarters, emphasizing execution and customer wins. For example, on the Q2 call, CEO John Stankey stated, **“Our performance is as strong as I can remember, and we’re winning with customers.”** This is a marked shift from the more cautious tone last year, when management highlighted “uncertainty in the macro environment.” The current guidance raises Mobility service revenue growth to **3%+** and projects **mid-to-high teens growth in consumer fiber broadband**, signaling a willingness to lean into growth investments while acknowledging competitive headwinds.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for the next quarter are **Mobility subscribers, ARPU, and churn**, as well as **fiber broadband net adds and ARPU**.

### Key KPI Table

| KPI                        | Q2 FY2024 | Q1 FY2025 | Q2 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|-----------|------------|------------|
| Mobility Subscribers (M)   | 117.5     | 117.9     | 118.2     | +0.7       | +0.3       |
| Mobility ARPU ($)          | 56.80     | 56.95     | 57.04     | +0.24      | +0.09      |
| Postpaid Churn (%)         | 0.98      | 0.99      | 1.02      | +0.04      | +0.03      |
| Fiber Net Adds (K)         | 220       | 235       | 243       | +23        | +8         |
| Broadband ARPU ($)         | 66.20     | 69.10     | 71.16     | +4.96      | +2.06      |

- **Mobility subscriber growth and ARPU improvement** should support revenue, but the **rise in churn** could cap margin expansion.
- **Fiber net adds and ARPU** are accelerating, likely driving Consumer Wireline revenue and margin upside.
- **Churn** is the key risk: if it continues to rise, acquisition costs and margin pressure will follow.

## Missed by the Street

Two signals are underappreciated:
- **Capital Allocation Flexibility:** Management’s update that **$1.3B of a planned $4B share repurchase has been completed YTD** suggests willingness to accelerate buybacks if FCF trends hold, potentially boosting EPS.
- **Execution Strength:** The phrase **“winning with customers”** (Q2 FY2025 call) hints at operational momentum that could deliver upside if churn stabilizes faster than consensus expects.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                              |
|----------|--------------|---------|----------------------|--------------------------------------------------------------|
| Bull     | 32.1–32.3    | 0.72–0.73| 21.2–21.4            | Fiber/5G outperformance, churn improvement, cost discipline  |
| Base     | 31.4–31.7    | 0.68–0.70| 21.0–21.1            | Mobility/Consumer Wireline trends continue, churn stable     |
| Bear     | 30.8–31.2    | 0.64–0.66| 20.7–20.9            | Churn worsens, Business Wireline drag, competitive pricing   |

**Most Likely:** The **Base case** is most probable, given current subscriber and ARPU trends, management’s tone, and the balance of fiber growth against churn and Business Wireline headwinds.

## Appendix – Data Tables & Management Quotes

### Quarterly Financials Table

| Quarter      | Revenue ($B) | EPS ($) | Operating Margin (%) |
|--------------|--------------|---------|----------------------|
| Q3 FY2024    | 30.2         | 0.66    | 20.7                 |
| Q4 FY2024    | 30.5         | 0.68    | 20.9                 |
| Q1 FY2025    | 30.6         | 0.69    | 21.0                 |
| Q2 FY2025    | 30.8         | 0.68    | 21.1                 |

### KPI Movement Table

| KPI                        | Q2 FY2024 | Q2 FY2025 | YoY Change | QoQ Change |
|----------------------------|-----------|-----------|------------|------------|
| Mobility Subscribers (M)   | 117.5     | 118.2     | +0.7       | +0.3       |
| Postpaid Churn (%)         | 0.98      | 1.02      | +0.04      | +0.03      |
| Fiber Net Adds (K)         | 220       | 243       | +23        | +8         |
| Broadband ARPU ($)         | 66.20     | 71.16     | +4.96      | +2.06      |

### Key Management Quotes

1. **“Our performance is as strong as I can remember, and we’re winning with customers.”**  
   - Q2 FY2025 Earnings Call  
   - Indicates high management confidence and execution momentum.

2. **“We expect Mobility service revenue growth of 3% or better for the full year.”**  
   - Q2 FY2025 Earnings Call  
   - Upward revision signals optimism in core segment.

3. **“We’re targeting 4 million new fiber locations per year.”**  
   - Q2 FY2025 Earnings Call  
   - Aggressive fiber buildout underpins Consumer Wireline growth.

4. **“Churn ticked up slightly, reflecting a more competitive environment.”**  
   - Q2 FY2025 Earnings Call  
   - Acknowledges risk to margins and customer retention.

5. **“We completed $1.3 billion of our planned $4 billion share repurchase year-to-date.”**  
   - Q2 FY2025 10-Q  
   - Signals capital allocation flexibility and potential EPS support.

6. **“Business Wireline remains a headwind, with negative operating margins.”**  
   - Q2 FY2025 Earnings Call  
   - Confirms ongoing drag on consolidated profitability.

7. **“We’re seeing early signs of normalization in demand for enterprise services.”**  
   - Q2 FY2025 Earnings Call  
   - Suggests potential stabilization, but not yet a turnaround.

---

**Bottom Line:**  
AT&T’s next quarter will hinge on the balance between **fiber-driven growth and churn management**. While the company is well-positioned to deliver stable results, upside will depend on execution in customer retention and the pace of capital returns. The market should watch for any inflection in churn or Business Wireline stabilization as key catalysts for EPS outperformance.

AT&T (T): Fiber Growth vs. Churn Risks