Lumen Technologies Sees Mixed Results in Q3 2024 Amid AI Partnerships
Lumen Technologies, Inc. LUMN reported an adjusted loss of 13 cents per share for the third quarter of 2024. This was better than the Zacks Consensus Estimate, which predicted a loss of 20 cents. In the same quarter last year, the company reported a loss of 9 cents per share.
For the quarter, total revenues were $3.221 billion, a decline of 11.5% from the previous year. This drop is linked to divestitures, commercial agreements, and the sale of the CDN business. Nevertheless, the revenue figure exceeded the Zacks Consensus Estimate by 0.6%.
Lumen’s Private Connectivity Fabric (“PCF”) sales continued to grow due to rising demand driven by artificial intelligence (AI). In fact, the company secured an additional $3 billion in new PCF deals since June 2024, bringing the total to $8 billion.
The company has formed partnerships with major tech firms to enhance its PCF solutions. Notably, a collaboration with Alphabet’s GOOGL Google Cloud aims to provide proactive data insights and AIOps across Lumen’s network. Leveraging Google Cloud’s technology, Lumen is creating a real-time Lumen Digital Twin to gain insights throughout its network. This partnership is intended to expand network capabilities for Google Cloud amidst its increasing service demand and drive AI innovation.
Lumen’s Stock Performance and Future Guidance
Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote
Recently, LUMN also formed a partnership with Amazon AMZN aimed at enhancing data center connectivity and cloud technology delivery. LUMN will utilize Amazon Web Services (“AWS”) technologies, including AI and machine learning, to augment its systems. In return, the company will provide fiber connectivity to AWS data centers, facilitating scalable AI applications for enterprise clients. Earlier, Lumen joined forces with Meta Platforms META to enhance its network capabilities for Meta’s infrastructure.
LUMN has raised its 2024 free cash flow forecast, expecting it to fall between $1.2 billion and $1.4 billion, up from the previous estimate of $1-$1.2 billion, due to increased cash flow from PCF sales. However, in pre-market trading today, LUMN stock is down 4.5%. Over the past year, LUMN shares have surged 476.9%, compared to a 60.5% rise in the sub-industry.
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Understanding Lumen’s Segment Performance
The company has introduced a new reporting structure that combines International and Global Accounts with large enterprises into the large enterprise channel, while the public sector operates in a separate channel.
In terms of specific segments, Business revenues decreased by 13% to $2.536 billion, while revenues from Large Enterprises fell 8% to $839 million. Mid-Market Enterprise revenues dropped by 7% to $471 million, while Public Sector revenues were down 4% to $427 million. LUMN expects public sector revenues to increase this year due to robust large bookings. Revenues in the North America Enterprise Channels declined by 7% to $1.737 billion, while Wholesale revenues decreased by 9% to $706 million.
Mass Markets revenues also fell by 7% year over year to $685 million.
Looking ahead, Lumen anticipates growth in its Quantum business, having added 43,000 Quantum fiber subscribers in the last quarter, raising the total to 1 million subscribers.
Additionally, Lumen expanded its reach by adding 131,000 Fiber broadband-enabled locations in the third quarter. As of September 30, 2024, the total enabled locations across retained states reached 4 million, with a target of 500,000 new locations in 2024.
Examining Lumen’s Margins
Total operating expenses fell by 9% year over year to $3.095 billion.
Operating income for the quarter was reported at $126 million, a decrease from $223 million recorded in the same quarter of the previous year. Adjusted EBITDA (excluding special items) dipped to $899 million from $1.049 billion, with corresponding margins of 27.9% and 28.8%.
Lumen’s Cash Flow & Liquidity Analysis
Lumen generated $2.032 billion in net cash from operations during the third quarter, compared to $881 million used in the prior-year quarter.
Free cash flow (excluding cash special items) for the third quarter stood at $1.198 billion, a significant increase from $43 million in the previous year’s quarter.
As of September 30, 2024, Lumen reported $2.64 billion in cash and equivalents and a long-term debt of $18.142 billion, compared to $1.495 billion and $18.411 billion as of June 30, 2024.
Lumen’s 2024 Expectations
Lumen projects adjusted EBITDA for 2024 in the range of $3.9 to $4 billion, with capital expenditures expected between $3.1 billion and $3.3 billion. The company noted that due to current business trends and early cost impacts from new PCF sales, the 2024 EBITDA is likely to be at the lower end of this range.
For 2025, Lumen anticipates EBITDA will remain below 2024 levels due to ongoing transformation investments and increased costs, along with falling legacy revenues. However, the company expects significant recovery in EBITDA by 2026, anticipating growth thereafter.
Current Zacks Rank for LUMN
Lumen currently holds a Zacks Rank #3 (Hold). You can view the full list of Zacks #1 Rank (Strong Buy) stocks here.
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