Morgan Stanley Reports Mixed Quarter for AT&T

In a report published Wednesday, Morgan Stanley analyst Simon Flannery reiterated an Equal-Weight rating on

. In the report, Morgan Stanley noted, “AT&T sold 2.9m smartphones under the Next equipment financing plan in 1Q14, of which 1.1m related to an early upgrade offer the company extended to existing subscribers. The Next accounting produces a Day 1 lift to revenues of around $240 per device versus the old subsidy model. This helped drive +52% y/y growth in wireless equipment revenues, contributing 75% of AT&T's consolidated revenue growth. On the flip side, wireless service revenue slowed to +2.2% y/y from +4.8% y/y in 4Q13, as customers moved rapidly to the new lower priced Mobile Share plans. "Postpaid net adds surprised positively at 625k for the quarter, but we estimate that some 500k of these adds were tablets, once prepaid switching is accounted for. In addition to the revenue impacts, expenses were elevated due to higher promotional activity, as well as content costs and other pressures in the wireline business.” AT&T closed on Tuesday at $36.29.