Security Analysis

AT&T Vs.
Verizon: A financial comparison
I. Case Summary
At&t and Verizon
This case assignment is about At&t and Verizon and how two corporations that are very similar in characteristics and the services
they offer have such divergent results. This case also examines the trends in the wireless and wireline industry and how the
communication industry as a whole is now a converged industry that could deliver multiple forms of communication on a single
platform. The biggest differentiation though, was whether the platform was wireless or wireline.
The wireless sector seems to be more successful in recent years as both firms have experienced a rise in revenues and
customers. While the wireless side has an increase in the number of subscriptions, the wireline sector is struggling in both firms and it
may disappear in the future. Many people have already switched over from wireline to wireless and the trend seems to be an industry
in constant and rapid growth which goes hand in hand with evolving with the times. This again ties to the wireless sector because it
seems to be evolving and adapting with the times. The strategy of each firm is to make as many technological improvements in the
wireless sector and to invest more capital into it for a better customer experience because the wireline will become obsolete
eventually.
II. Case Analysis (Wireless and Wireline)

A. Wireless Operating Results
Table 1 – AT&T
Analysis of Table 1
The revenue of the wireless operating results for AT&T seem to be in an upward trend. The service revenue and the equipment
revenue continue to grow yearly. The percent change indicates that the wireless sector has grown a considerable in 5 years. The
compounded annual growth rate has been increasing at a steady rate which shows that the firm is doing well in the wireless sector.
The company is becoming less efficient though as expenses are rising at a fast pace with respect to the revenues. The growth is
consistent with the firms strategy. The trend in the operating income margin seems to be steady at around 23-26% and the operating
expense margin is also steady at around 62-66%.
Table 2 - Verizon
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Analysis of Table 2
Based on the table, we can see that Verizon is doing better with their wireless sector than AT&T. The revenue streams are growing
faster. The compounded annual growth rate is growing at a higher rate than AT&T. Their expenses also seem to be lower which
means their net operating income is higher than AT&T as well. Verizon seems to be very efficient because it has great margins based
on the margin analysis. Their expense margin and income margin are fairly even.
Table 3 – Wireless Subscribers (AT&T)
Table 4 – New Wireless Subscribers(AT&T)
Table 5 – Churn Rate(AT&T)
Analysis of Tables 3,4,5

These tables show us the number of wireless subscribers, new subscribers as well as churn rate for AT&T. The wireless subscribers
are continuing to grow because that’s where this industry is heading. Postpaid subscribers are still increasing but 105% change versus
17.5% change shows that prepaid is also spiking. The Average revenue per user is low when comparing to Verizon. They are making
essentially .16 cents per subscriber. One more thing to notice is the postpaid churn rate which has a negative CAGR which means
they are losing those customers at a slow rate.
Table 6 – Wireless Subscribers (Verizon)
Table 7 – New Wireless Subscribers
Table 8 – Churn Rate
Analysis of Tables 6,7,8

These tables are the composite wireless/new wireless subscribers for Verizon. Here, we can see that Postpaid users are increasing but
prepaid users are decreasing at 61.7%. Wireless subscribers continue to increase which shows that postpaid is more popular in this
company. Verizon is losing customers though as noted by the churn rate. This could be due to bad contracts or customers just not
getting good customer service.
B. Wireline Operating Results
Table 9 – AT&T
Analysis of Table 9
AT&T’s wireline results show us that they are losing revenue at a CAGR of -1.7% and they are losing income at a CAGR of -7.8%.
This means that the company has to start thinking about how to focus on the wireless sector and how to switch customers over to that.
In terms of revenue, the equipment seems to be the majority of it so they need to focus on wireless devices.
Table 10- Verizon
Analysis of Table 10:

This table shows Verizons financials in the wireline sector. The companys revenue and income is on a steady decline in this sector.
The only area which seems to grow is the consumer and small business revenue and this could be because those areas are old and
can’t switch over to wireless. Based on the negative CAGR throughout, the company needs to do something to either boost this sector
or make this sector obsolete. Their operating expense margin is higher than income margin which is a big negative.
III. Financial Statement Analysis- Stand Alone

A. Operational Efficiency and Profitability
Table 11 – AT&T
Table 12 – Verizon
Analysis for Table 11&12:
These tables show the profitability of both companies based on margin analysis. According to Gross margin and operating margin,
Verizon has the positive CAGR which means it’s an upward trend in profitability. AT&T has a huge negative net profit margin which
shows that theyre either paying off large amounts of debt, or theyre losing revenue.
Table 14 – AT&T
Table 15 – AT&T
Analysis for Table 13-16:
In these tables, we can see that Verizon has better ROA’s and ROE’s based on calculations. AT&T has a negative CAGR of -26.23%
and -22.53% whereas Verizon has positive 5.14% and 12.53% for ROA and ROE. This indicates and upwards profit trend for Verizon
and a downward profit trend for AT&T. The most noticeable difference would be the CCC for both firms. Verizon has a much lower
CCC than AT&T which means it takes much less time for Verizon to convert its investments in inventory and other resources into
cash flows from sales.
B. Debt Capacity
Table 17- AT&T
Table 18- Verizon

These tables show us the debt capacity for each company. The coverage ratios show us that Verizon has a higher debt capacity than
AT&T. When looking at EBITDA/Interest, AT&T and Verizon are both below the industry average which means financial institutions
can offer funds at a certain multiple of EBITDA. Paying existing debts while taking out additional loans seems to be a negative for
both firms.
C. Free Cash Flow
Table 19 – AT&T
Analysis for Table 19,20:

These tables show the free cash flow for each firm. AT&T is on a downward free cash flow trend whereas Verizon is on an upward
trend. This could be due the amount of debt that AT&T has accumulated in comparison to Verizon. With Verizons free cash flow, they
can buy back stock, pay dividends, or even reduce its debt. AT&T doesn’t seem to have that luxury.
D. ROIC & NOPAT

Table 21 – AT&T

These tables show that Verizon has the better NOPAT and ROIC. You can see throughout the years that AT&T has much bigger
fluctuations than Verizon. The CAGR is negative for AT&T and positive for Verizon which means that Verizon performed much
better through its core operations, net of taxes. Verizons operating efficiency is much better than AT&T.
III. Financial Statement Analysis- Comparative Analysis
Summary: Based on these comparative stats in the wireless sector for both companies, we can see that Verizon has the edge when it
comes to revenue and operating income. They even have more revenue per user than AT&T. Verizon is the better performer and better
positioned to lead the way for the wireless sector given the trend in the communications industry. The shift in the industry has been
customers shifting towards installment purchases and away from extended service contracts.
Summary: Based on these consolidated financial statements, we can see that Verizon is the better performer. The gross profit margin
is 4 points higher which makes a big difference in this industry. The ROE is higher as well which means shareholders are getting
bigger amounts compared to AT&T. The Free cash Flow is significantly higher for Verizon which means they have excess money to
buy back debt, invest, etc. The debt is bit higher for Verizon but it is offset by the higher ROIC and NOPAT. Verizon is definitely the
company to invest in.
IV. Alternatives
Alternative1:
Recommend investing in AT&T over Verizon. This is not the best option considering this company is very slow in transitioning to the
future. AT&T does have a big subscriber base but they also have many old customers that are in the wireline sector. There could be a
potential there because big businesses will always need wireline optics in the near future. The net income is higher for AT&T so
investing in it could mean bigger profits.
Alternative 2:
Recommend investing in neither. Both companies are on a downward trend in terms of subscribers and wireline to wireless shifts.
Theyre not conforming fast enough to the technological advances. With the advancement of wireless technology, wireline is a thing
of the past and it will be obsolete in the near future. It would be wise to find a company in this space that is upcoming but is all about
evolving the communications industry.
IV. Recommendation
Verizon:
Diane Tagert should recommend Verizon to Danagger Capital Management in terms of an investment. Based on the industry shifts of
both firms, Verizon is the one that is making a bigger effort to switch over to the wireless sector. They have a bigger wireless
subscriber base. They also give service to 98% of the USA which means that shifting over would include so many clients. The
company is doing better in terms of financials and non financials when compared to AT&T. Verizon is focused on diversifying
whereas AT&T is still too old fashioned.
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AT&T Vs.

Verizon: A financial comparison

At&t and Verizon

II. Case Analysis (Wireless and Wireline)

Table 3 – Wireless Subscribers (AT&T)

Table 4 – New Wireless Subscribers(AT&T)

Table 5 – Churn Rate(AT&T)

Analysis of Tables 3,4,5

Table 6 – Wireless Subscribers (Verizon)

Table 7 – New Wireless Subscribers

Table 8 – Churn Rate

Analysis of Tables 6,7,8

Table 10- Verizon

Analysis of Table 10:

III. Financial Statement Analysis- Stand Alone

Analysis for Table 11&12:

Analysis for Table 13-16:

Table 17- AT&T

Table 18- Verizon

Analysis for Table 17&18:

C. Free Cash Flow

Analysis for Table 19,20:

D. ROIC & NOPAT

Analysis for Table 21&22:

III. Financial Statement Analysis- Comparative Analysis

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