AT&T, a major telecommunications corporation, has recently presented its third-quarter financial outcomes, showcasing a strong performance particularly in its core subscriber services. The company's strategic focus on integrating wireless and fiber services to cultivate a high-value customer base appears to be yielding positive results, with significant additions in both postpaid phone and fiber optic subscriptions. Despite certain financial metrics not fully aligning with analyst predictions, AT&T has maintained its fiscal year projections, underpinning a confident stance on its future profitability, especially regarding its free cash flow. This positive trajectory, combined with what many perceive as a favorable stock valuation, positions AT&T as an attractive option for investors looking for long-term value.
The telecommunications giant, AT&T, outlined a clear and focused growth strategy aimed at securing customers who bundle its wireless and fiber services. This approach proved effective in the third quarter, with the company reporting substantial increases in its subscriber base for both postpaid phones and fiber internet. Specifically, AT&T successfully added 405,000 net postpaid phone subscribers, slightly surpassing the 401,000 additions from the previous quarter. The mobility service revenue saw a 2.3% year-over-year increase, complemented by a 2.2% rise in mobility EBITDA, indicating healthy operational performance in its wireless division.
In its consumer wireline segment, AT&T's dual-pronged strategy involving fiber expansion and its 5G-powered Internet Air service has been particularly successful. The company acquired 288,000 net fiber subscribers, pushing the total to an impressive 10.1 million. Additionally, 270,000 customers adopted Internet Air, a solution designed to extend high-speed internet access to areas not yet covered by the fiber network. This combined effort resulted in a remarkable 16.8% year-over-year growth in fiber revenue. A notable achievement is the increasing number of customers subscribing to both wireless and fiber services, now totaling 4.2 million, which represents 41.5% of the fiber installed base. This figure has been steadily climbing from 39.7% in the third quarter of the previous year, highlighting the growing success of AT&T's converged offerings. These bundled customers are highly valued for their reduced churn rates and higher lifetime revenue generation.
From a financial standpoint, AT&T generated $4.9 billion in free cash flow during the quarter, an increase from $4.6 billion in the same period last year. The company is optimistic about its future cash flow, projecting at least $16 billion for the full year, with further increases to over $18 billion by 2026 and $19 billion by 2027. A significant portion of this free cash flow is being utilized for share repurchases, with $1.5 billion spent in the third quarter, following $1 billion in the second. These buybacks are seen as a prudent use of capital, especially given the stock's current valuation, which appears to be in bargain territory relative to its free cash flow generation. Furthermore, AT&T successfully reduced its net debt by $6.9 billion over the past year, strengthening its financial position.
While AT&T's overall performance was positive, some minor concerns emerged from the third-quarter report. The postpaid phone churn rate, which measures customer attrition, saw a slight increase to 0.92% from 0.78% in the prior year. Although still relatively low, this uptick could signal a growing willingness among consumers to switch providers in pursuit of better deals. Additionally, the average revenue per postpaid phone user (ARPU) experienced a marginal decline of 0.8% year-over-year, reaching $56.64. This decrease might suggest that customers are opting for more budget-friendly plans amid economic uncertainties. These trends warrant close monitoring, particularly with the potential for an economic downturn. However, the overwhelmingly positive aspects of AT&T's performance significantly overshadow these minor setbacks.
Considering AT&T's market capitalization of approximately $188 billion, its price-to-free-cash-flow ratio is projected to be below 12 based on 2025 guidance, dropping to under 10 when looking at the 2027 outlook. While potential economic pressures could impact free cash flow if customers face financial difficulties, the company's current valuation offers a considerable safety margin for investors. The third quarter showcased AT&T's ability to achieve consistent subscriber gains across its key services, reinforcing the effectiveness of its converged strategy. The ongoing share buyback program is set to enhance earnings per share in the coming years, driven by rising free cash flow. For those considering a long-term investment, AT&T's stock presents a compelling value proposition.
