Despite AT&T missing its projected Q3 earnings, the telecom giant’s new data-driven ad unit Xandr had “strong growth,” executives told investors Wednesday.
Xandr’s ad revenue grew 34% YOY, fueled by AT&T’s acquisition of AppNexus. Excluding AppNexus, revenue was still up 22%. Xandr’s Q3 revenues were $445 million, and its operating margin was 74.8%. In Q3 2017, its operating margin was 88.3%.
AT&T execs praised Xandr’s potential for growing ad revenue even more as the company builds out its addressable TV capabilities. Xandr already has deals in place with Altice USA and Frontier Communications to do this.
AT&T CFO John Stephens said AppNexus, which AT&T acquired in August, largely contributed to ad revenue growth in the quarter. AppNexus’ platform, combined with AT&T’s video inventory and “significant advertising slots,” will help grow its ad business, Stephens said.
“Longer-term, if we use this ability, we can provide so much flexibility to our customer base on linear TV, DirecTV Now, OTT, and even moving it on to wireless and other areas,” Stephens said.
Although its advertising revenues grew in Q3, AT&T fell short of analyst projections for the quarter, leading to a 3% drop in its stock price as of Wednesday morning. Cash flow from operations was $12.3 billion, up 14% YOY.
As AT&T’s traditional TV business changes in step with new consumer behavior, the company has big plans for Xandr. AT&T aims to combine its 170 million subscribers with WarnerMedia’s content, and thus generate more targeted advertising and ultimately higher yield.
AT&T says the next step for Xandr is to build out its partner base, signing deals with more television companies.