VALUATION HIGHLIGHTS

1. Consumer constitutes 92% of the Trefis price estimate for Verizon's stock.

WHAT HAS CHANGED?

Q4 2023 Performance

Verizon posted a better than expected set of Q4 2023 results. Earnings for the quarter came in at $1.08, in-line with expectations. Revenue stood at $35.1 billion, about 0.6% down verusus last year, although the number was ahead of estimates. Verizon posted 449,000 postpaid phone customers additions for the quarter.

5G C-band Spectrum Rollout

Verizon has been building out its 5G network for some time now, focusing on deploying the mid-band C-band spectrum, which can offer average download speeds of 300Mbps. As of March 2023, the company said that this spectrum reached about 200 million people.

Verizon divests AOL and Yahoo businesses

Verizon has sold off its AOL and Yahoo internet properties to Apollo, a private equity group, as it looks to move away from the media and advertising technology it forayed into back in 2015 while focusing on its core competence as a wireless network operator.

BUSINESS SUMMARY

Verizon makes money primarily through mobile phone subscription plans for consumers and businesses. The company also provides landline phone service to residences, small businesses, and large enterprises. 5G 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.

Consumer

• Verizon Retail Wireless ARPU: We expect this figure to increase from current levels of about $44.5 in 2022 to about $48 by the end of our review period as more customers opt for the company's 5G services and higher-end plans. If this number comes in at over $55 by the end of our review period, there could be a 10% upside to our price estimate.

For additional details, select a driver above or a division from the interactive Trefis split for Verizon at the top of the page.

SOURCES OF VALUE

The Consumer segment constitutes the majority of Verizon's value due to:

Higher revenue base and thicker margins

Verizon's consumer business accounted for almost 77% of the company's revenue in 2022. Gross Margins for the segment are also thicker, standing at about 60% compared to under 50% for the Business segment due to its higher exposure to wireless revenues. The growth potential for the segment is also higher.

KEY TRENDS

Verizon's big spectrum investments

While Verizon was seen as having the strongest 4G network in the U.S., the company trails T-Mobile, which is perceived to have the strongest 5G network in terms of reach and upload and download speeds due to its rich mid-band spectrum holding, which is considered as the sweet-spot for 5G deployments. However, during the FCC C-Band auction held in 2021, Verizon spent $52.9 billion, including incentive payments and clearing costs, to add an average of 161 MHz nationwide spectrum. This move effectively doubled Verizon's mid-band spectrum holdings. The company rolled out this spectrum to 200 million people as of March 2023.

Mobile Voice Declines Offset by Data

Mobile phone voice plan pricing has gradually declined 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 downward, the increased data revenue contribution has helped mitigate the impact on total ARPU. Verizon has also been letting go of its feature phone subscribers while focusing on retaining higher-value smartphone users.

Reducing focus on the landline market

Verizon has been stepping back from the declining landline market to focus on the more lucrative wireless business, which is growing faster and is less heavily regulated. The wireless business is also not unionized, unlike the wireline business.