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Is AT&T (T) Mulling Over Selling Digital Life Platform?

Zacks Equity Research

Citing an unnamed source, Reuters recently reported that the U.S. telecom behemoth AT&T Inc. T is exploring a number of strategic options including an outright sale of its home security business – Digital Life. The sale proceeds are likely to be utilized to reduce the company’s huge debt burden which stood at approximately $143.7 billion as of June 30, 2017.

Notably, AT&T’s debt has skyrocketed after its decision to acquire media mogul, Time Warner Inc. TWX, for a consideration of $85.4 billion. The proposed merger deal has reportedly entered the late stages of its approval process at the Department of Justice. AT&T expects to close the deal by the end of this year, subject to certain regulatory conditions.

AT&T entered the U.S. home security and automation market in 2013 in an effort to enhance its connected devices and services offerings. The company’s flagship Digital Life product suite comprises a variety of devices and services including motion alerts, energy controls and live video feeds. Customers of Digital Life are provided with sensors and cameras, which enable them to monitor their homes and pets on their phones. The service is currently available in 80 U.S markets including New York and Chicago.

Nevertheless, home security business continues to be a small part of AT&T’s diversified business model. In 2016, this division generated a shade less than $1 billion in revenues out of a massive $163.8 billion of total revenue of the company. The company has estimated 400,000 – 500,000 customers for this division.

In September 2016, Spanish telecom giant Telefonica SA’s TEF U.K. unit, O2, launched a smart home service O2 Home using AT&T’s Digital Life platform. The company offers a three-tiered service to users enabling them to connect devices and services in their homes.

However, AT&T Digital Life continued to face intensified competition from cable MSO (multi service operator) giant Comcast Corp. CMCSA which introduced Xfinity home service in 2012. Comcast entered this field as a diversification of its saturated cable TV business and currently serves nearly 1 million customers.  Importantly, in July 2017, AT&T sold LifeShield, the home security unit of DirecTV, to private equity firm Hawk Capital Partners for an undisclosed sum.

Price performance of AT&T

Year to date, the stock price of AT&T has witnessed a decline of 12.13% compared with the industry’s growth of 1.65%. Nevertheless, AT&T is diversifying its businesses significantly. The company became the largest pay-TV operator last year, after its acquisition of satellite TV behemoth DIRECTV. Moreover, the company already has a strong presence in the Mexican wireless market and several Latin American pay-TV markets. The proposed merger with Time Warner will provide AT&T with a portfolio of lucrative contents. We believe that substantial diversification in related fields is the reason behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Time Warner Inc. (TWX) : Free Stock Analysis Report
 
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