This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Verizon (NYSE:VZ)
Verizon makes money primarily through mobile phone subscription plans for consumers and businesses. The company also provides land line phone service to residences, small businesses and large enterprises. 4G wireless, wireline broadband Internet and fiber optic TV services (FiOS) are growth areas for Verizon.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Verizon's value that present opportunities for upside or downside to the current Trefis price estimate for Verizon.
Mobile Plans & Phones
U.S. Mobile Phones in Use: We estimate that this figure will increase from about 304 million by the end of 2013 to about 340 million by the end of our forecast period. However, there could be a downside of about 3% to our price estimate if this figure only reaches to 315 million by the end of our forecast period. On the other hand, there could be an upside of a similar order if the figure hits the 365 million mark by the end of our forecast period.
Verizon's Share of Monthly Mobile Subscribers: We estimate that this figure will remain around 2013 levels of 32% by end of our forecast period. However there could be an upside of about 5% if this figure hits 38% instead.
Wireless SG&A as % of Wireless Gross Profits: We estimate that this figure will increase from about 38% in 2013 to about 41% by end of our forecast period as Verizon may need to increase marketing expenses to compete against rivals such as AT&T, T-Mobile and Sprint. However there could be an upside of about 8% to our price estimate if this figure stabilizes around current levels. On the other hand, there could be a downside of 20% if the figure increases to about 48% by end of our forecast period.
Wireless CapEx as % of Wireless Gross Profits: We expect this figure to increase from 13.4% in 2013 to about 14% by end of our forecast period as Verizon continues to expand its enhanced LTE (XLTE) network and also spends on network improvements to compete better. However, there could be a downside of about 5% to our price estimate if this figure increases to around 15%.
For additional details, select a driver above or select a division from the interactive Trefis split for Verizon at the top of the page.
Mobile Plans & Phones constitute the majority of Verizon's value for these two reasons:
High Revenue Per Subscriber
We estimate that Verizon's postpaid revenue per subscriber stood at around $27.50 per month for year 2013. In addition to this, we estimate that its average data ARPU (average data revenue per user) stood at over $23 in 2013. If we combine this we get an estimated ARPU of over $50 for postpaid users. Although the actual postpaid ARPU will be higher than this since our data ARPU is averaged across prepaid subscribers as well. Nonetheless, it does indicate that revenue per subscriber for the mobile business is higher than that for the land line phone business which stood at around $18 for 2013. This ARPU figure is considerably less than what Verizon gets from its FiOS customers. However, the number of mobile subscribers is much higher than FiOS subscribers, making mobile phones & plans Verizon's most important division.
High Market Share in a Big Mobile Market
Verizon has the largest subscriber base in the U.S. We estimate that Verizon will have around 32% share in the U.S. mobile market which will grow to around 380 million estimated connections in 2021.
Push for 4G and beyond
All major mobile operators in the U.S. have built expansive 4G networks that offer 5-10 times higher data speeds than 3G. First to deploy LTE, Verizon has maintained the lead and was recently ranked as the number one U.S. operator in terms of network coverage, speed and quality. As a growing number of smartphone users demand high-speed wireless services, Verizon is better placed than rivals to tap this demand with its high quality and expansive LTE and XLTE networks.
Scarcity of wireless spectrum
The wireless market is intensely competitive, with the number of wireless subscriber connections (336 million) exceeding the total population (316 million) in the U.S. As an ever increasing number of smartphone users demand higher speeds and congestion-free networks, wireless carriers are hard-pressed for additional spectrum in order to meet these demands. However, there are no imminent government auctions of airwaves that could help mitigate this spectrum crunch. Such a scenario usually calls for consolidation in the industry. However, the FCC and Department of Justice have made it amply clear that large scale consolidation will be difficult to pull off. This can be witnessed in the unsuccessful AT&T-T-Mobile and Sprint-T-Mobile mergers. In this context, Verizon has scored a big win by acquiring AWS licenses from multiple cable companies for its rapidly growing LTE network. This not only secures its spectrum needs for the future but also moves a huge swathe of unused spectrum off the table for rivals in desperate need of spectrum.
Mobile Phone Voice Plan Pricing Declines Offset by Data
Mobile phone voice plan pricing has seen a gradual decline, as competition has intensified and technology (primarily speed and reliability) and reach have improved. Increasingly, data access is a significant part of usage. So, while average voice revenues have been on a downward trend, the increased data revenue contribution has helped mitigate the impact on total ARPU.
SMS usage on a decline
SMS texting rates have started declining in several advanced SMS markets such as Finland, Netherlands and Hong Kong. Since the U.S. saw a boom in text-messaging a couple of years after these countries, we expect the trend to come to U.S. shores soon. The decline in SMS usage can be attributed to the growing use of smartphones that has caused customers to migrate from traditional modes of communication such as text-messaging or SMS to the more convenient and new age messaging services of social media (Facebook & Twitter), email and other IP-based messaging systems. The erosion in SMS usage may have a negative impact on most wireless carriers' data ARPUs as carriers generally charge much more per byte of SMS data sent than any other data sent over the Internet.
Verizon to enter online streaming business
The online streaming market has seen tremendous growth, enabling market leader Netflix to grow its revenues by almost three times in the last four years. Launching its own streaming service will therefore enable Verizon to enter this high growth market and make a profitable venture out of it. It could also bundle this service with its existing wireless service and gain a competitive edge in the wireless market by differentiating itself from its rivals. However, a sticking point for the launch could be a lack of relationship with content providers who might think twice before striking deals with Verizon that might jeopardize their existing long time relationship with cable operators. This is where Verizon is looking for partners with an already existing relationship with content providers to fill in. It looked to buy Hulu in this regard but the talks didn't materialize. Rumors of a Redbox partnership or a possible Netflix acquisition have also made the rounds.
Declining Phone Lines per Household
The number of phone lines per household is expected to continue to decline in line with trends in recent years, as many consumers eliminate secondary lines and mobile phones become the primary phones for many consumers. Improvements in the reliability and connection quality of cell phones will have a significant impact on residential phone lines.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics