Shares of Verizon climbed after the company’s wireless business posted generally positive third-quarter results, beating analysts’ expectations. But questions remain about whether the carrier can build on its momentum in a market of increasing network parity.
The nation’s largest mobile network operator reported service revenue of $15.8 billion during the quarter, down 5.1% year over year but slightly outpacing Wells Fargo’s estimate of $15.7 billion. Its 274,000 retail postpaid phone net additions soundly beat expectations that had been in the range of 170,000, and its overall postpaid net adds of 603,000 also beat Wall Street estimates.
The earnings built on momentum Verizon saw during the second quarter after it launched unlimited-data plans, finally joining its rivals in a reversal of its long-standing opposition to all-you-can-eat plans. Investors cheered the results, sending shares of Verizon up more than 3% this morning.
“Verizon Wireless delivered another quarter of profitable growth combined with strong customer loyalty,” CEO Lowell McAdam said in a press release. “While steadily investing to advance our network leadership and to build the Verizon Intelligent Edge Network, we have also maintained the financial flexibility to increase shareholder dividends for an 11th consecutive year.”
Here’s a closer look at some of Verizon’s key quarterly metrics:
Subscribers: In addition to strong postpaid phone growth, Verizon saw 91,000 tablet net additions and 238,000 net adds of other connected devices, led by wearables. It added 30,000 postpaid accounts in the third quarter, rebounding from a loss of 107,000 such accounts during the same period in 2016, and its retail postpaid churn of 0.75% marked the tenth consecutive quarter of retail postpaid phone churn of less than 0.9%. The company also posted 139,000 prepaid net additions during the quarter.
Financials: Overall revenue, EBITDA and earnings per share all came in just ahead of expectations, New Street Research reported, and wireless EBITDA of $9.97 billion beat Wall Street consensus estimates of $9.67 billion. ARPU was in line with expectations, and service margin of 62.9% beat estimates and “was for the second straight quarter the highest on record for any U.S. wireless operator,” MoffettNathanson reported.
Capex guidance: Verizon said consolidated capital spending for the year will be at the lower end of previous guidance in the range of $16.8 billion to $17.5 billion.
Media, telematics and the IoT: The carrier continued to tout the success of its burgeoning IoT business, which posted a 13% year-over-year increase in organic revenue thanks largely to the telematics division. Meanwhile, its Oath business saw roughly 1 billion monthly unique users and generated $2 billion in revenue during the quarter.
Summary: Verizon clearly continued to regain traction in a third quarter that was notable for its lack of competition. But analysts continue to question its media strategy, and questions remain about how effectively the carrier can continue to leverage its superior network—which has long been a key differentiator—in an era of unlimited data.
“Subscriber trends remained strong in a low-volume quarter characterized by soft competition,” New Street analysts wrote in a note to subscribers. “However, nothing in the quarter changes our view on the company’s competitive positioning relative to peers; they have far less resources than peers to compete on capacity and speed over the long term (and Ookla data shows that the Verizon network may be coming under strain). Data growth is likely continuing apace, and Verizon continues to generate 36% of industry service revenues on just 15% of industry spectrum.
“We don’t believe 5G will solve Verizon’s problem either: it requires dense fixed infrastructure and they cover <15% of the country with their FiOS footprint,” New Street continued. “Finally, we believe they are one of the most likely buyers in upcoming industry consolidation; they need more assets to support the existing business, whether those assets are spectrum (i.e. Dish) or dense wireline infrastructure (i.e. cable); indeed, a transaction may be one of their last chances to avert ongoing deterioration in the business.”