While AT&T Tops Earnings Forecasts, Video and Key Mobile Subscribers Drop

While the acquisition of DirecTV pushed AT&T (T) sales higher and its earnings for the first quarter topped forecasts, the telecom reported fewer new U.S. wireless subscribers with conventional plans than expected after hours on Tuesday.

After initially climbing, shares of the telecom dropped 41 cents, or 1.1%, to $37.68 after the market close.

Revenue rose 24% to $40.5 million, slightly above Wall Street expectations, largely due to last year's purchase of DirectTV for $49 billion in equity value, or $67 billion including debt. Adjusted earnings per share increased more than 10% to 72 cents, topping forecasts of 69 cents per share.

CFO John Stephens noted that AT&T scored its fourth consecutive quarter of double-digit adjusted earnings per share growth.

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Stephens said AT&T is on track to reap $1.5 billion in savings and other benefits from the DirecTV  (DTV) purchase by year's end and that the telecom topped $1 billion in advertising revenue. The company lost 54,000 video subscribers, however. While DirecTV added 328,000 subscribers, AT&T's U-Verse pay-TV service lost 382,000 customers.

AT&T has made efforts to link subscriptions of DirecTV and its wireless services. The company reported three million subscribers to an unlimited voice, video streaming, text and mobile data service that it offers customers of DirecTV and its mobile service. AT&T launched a promotion for the offering in January, and Stephens said the upper-tier subscriptions "creates satisfaction" for customers and "high value for us."

The wireless business is showing signs of static, though. AT&T's net additions of post-paid subscribers, who have more lucrative monthly contracts than prepaid account holders, fell from 441,000 in the first quarter of 2015 to 129,000 in the first quarter of 2016.

Stephens said the company is focused on profitable and valuable long-term customers, and AT&T reported its highest-ever wireless Ebitda service margin of 49.5%.

While the DirecTV purchase represents one prong in AT&T's video strategy, the company launched another on Tuesday. Fullscreen, a company that is part of AT&T's Otter Media joint venture with Chernin Group, debuted its $4.99 per month video streaming service.

Fullscreen's offerings features youth-focused video content, such as a reboot of 70s show "Electra Woman and Dyna Girl," "Selena Gomez: Living the Life," "My Selfie Life" and "Filthy Preppy Teen$."

The intersection of mobile and video is increasingly competitive. UBS estimated U.S. consumers would watch 15% of their video on mobile devices this year, compared with 1% five years ago.

T-Mobile USA has lured subscribers with its Binge On promotion that lets subscribers watch Alphabet's (GOOGL) YouTube, Netflix (NFLX) and Time Warner's (TWX) HBO NOW on their devices without taxing their monthly data allotments.

Verizon (VZ) has been courting millennials with its Go90 video app and a string of recent investments. In April, the New York telecom announced it would team with Hearst to buy Complex Media, a content brand targeting young males. It also said it would take a 24.5% stake in AwesomenessTV from DreamWorks Animation (DWA) and acquire virtual reality and 360-degree video maker RYOT.

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