Key Trends To Watch In Verizon’s Q3 Earnings

Verizon (NYSE:VZ) is expected to publish its Q3 2016 results on October 20, reporting on an eventful quarter that likely saw its wireline business return to growth after the Q2 labor strike, while its wireless business potentially faced some pressure amid significant promotional activity surrounding Apple’s iPhone 7 launch. Below we outline some of the key factors to watch when Verizon publishes results.

We have a price estimate of $55 for Verizon’s stock, which is about 15% ahead of the current market price.

See our complete analysis for Verizon

Postpaid Subscriber Metrics May Face Pressure On iPhone Launch

Much like other nationwide carriers, Verizon offered aggressive promotions on the iPhone 7, effectively providing the device for free after trade-ins. However, unlike its rivals who have indicated significant increases in iPhone sales (Sprint and T-Mobile touted 3x to 4x gains in pre-orders versus the iPhone 6 and 6S), Verizon’s iPhone sales growth was more muted. This could imply that smaller rivals are winning over subscribers from Verizon, impacting its churn levels while hurting its postpaid phone subscriber adds, which have already slowed down considerably in recent quarters. Postpaid phone net adds were down 73% y-o-y during Q2 amid the attrition of feature phone subscribers. Separately, postpaid churn could also be impacted by tablet attrition, as customers who signed up for Verizon’s tablets promos two years ago roll off their contracts.

Wireless Revenues Could Decline On Weaker Service And Equipment Sales

Verizon’s wireless revenues could also trend lower on a year-over-year basis. While the carrier’s service revenues have already been impacted by the shift to equipment installment plans (down 5.4% in Q2), the iPhone deal could put pressure on equipment revenues as well over the quarter. That said, we still expect Verizon’s wireless EBITDA margins to post a moderate year-over-year improvement, driven by a higher mix of smartphone customers and a larger proportion of customers activating devices on equipment installment plans, which recognize a larger portion of equipment revenues upfront.

Wireline Net Adds May Improve As Verizon Works Through Strike Backlog

Verizon’s wireline operations could have a strong quarter in terms of net additions, as the carrier works though a backlog of new installations after a seven week long labor strike in its Northeastern wireline operations during Q2. That said, we will be closely watching the performance of the firm’s FiOS broadband offering that it is banking on to drive long-term growth for its wireline operations. FiOS broadband net adds have seen four straight quarters of declines.

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