Verizon posted a weak set of Q2 2022 results, with Q2 adjusted EPS coming in at $1.31, slightly below estimates, while revenue of $33.8 billion was roughly in-line with estimates and flat versus last year. Although the closely watched wireless business expanded 9.1% year-over-year due to the acquisition of low-cost prepaid provider TracFone, the company's lucrative postpaid phone additions were well below estimates at just 12,000. Moreover, the wireline business also continued to decline. Verizon also sees some pressure on its earnings going forward, as it expects adjusted EPS of $5.10 to $5.25 for 2022, down from its previous guidance for adjusted EPS of $5.40 to $5.55.
Verizon has been building out its 5G network for some time now, with the current focus being on deploying the mid-band C-band spectrum, which can offer average download speeds of 300Mbps. The company is aiming to cover 175 million people with its faster 5G in 2022. Verizon spent roughly $53 billion on this mid-band spectrum in early 2021.
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.
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. 4G wireless, wireline broadband Internet, and fiber optic TV services (FiOS) are growth areas for Verizon.
Below are key drivers of Verizon's value that present opportunities for upside or downside to the current Trefis price estimate for Verizon.
For additional details, select a driver above or a division from the interactive Trefis split for Verizon at the top of the page.
The Consumer segment constitutes the majority of Verizon's value due to:
Verizon's consumer business accounted for over 76% of the company's revenue in 2021. Gross Margins for the segment are also thicker, standing at about 60% compared to around 50% for the Business segment, due to its higher exposure to wireless revenues. The growth potential for the segment is also higher.
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 a total of $52.9 billion, including incentive payments and clearing costs, to add an average of 161 MHz of the C-Band nationwide spectrum. This move effectively doubled Verizon's mid-band spectrum holdings. The company is looking to roll out this spectrum to 175 million subscribers by the end of 2022.
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. Verizon has also been letting go of its feature phone subscribers while focusing on retaining higher-value smartphone users.
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.