Key Trends To Watch As Verizon Reports Q4 Earnings

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Verizon (NYSE:VZ), the largest U.S. wireless carrier, is expected to publish its Q4 2016 results on January 24, reporting on a quarter that likely saw the carrier improve its wireless subscriber adds, while continuing to witness some headwinds in the wireline space. Below, we provide a brief overview of what to expect when Verizon reports its results Tuesday.

We have a price estimate of $56 for Verizon’s stock, which is slightly ahead of the current market price.

See our complete analysis for Verizon

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Postpaid Wireless Phone Adds Could Improve

Verizon’s postpaid phone performance was a mixed bag over the first nine months of 2016, on account of significant feature phone attrition and competition from its smaller rivals T-Mobile and Sprint. During Q3, the carrier lost about 393k feature phone subscribers, while its smartphone adds were not sufficient to offset the decline. That said, we expect phone net adds to improve during the holiday quarter, as postpaid feature phone losses potentially decline, while the carrier also benefits from improved availability of high-end smartphones such as the iPhone 7. Moreover the launch of Google’s well-reviewed Pixel smartphone, for which Verizon is the exclusive U.S. carrier, may also provide an incremental upside.

While we expect Verizon’s churn levels to remain at around ~1%, there is a possibility that there could be a slight increase on a year-over-year basis, as some customers who signed up for tablets promos two years ago roll off their contracts. The carrier’s ARPU could also trend lower on a year-over-year basis, on account of a shift towards equipment installment plans, which have lower service billings compared to contract plans. About 60% of the carrier’s customers were on subsidy-free plans as of Q3.

Wireline Could Continue To Face Headwinds

Verizon’s wireline operations are likely to have seen decline in overall  subscribers on a year-over-year basis, on account of attrition of high speed internet and voice subscribers. However, we will be closely watching the performance of the carrier’s FiOS fiber optic broadband offering, which it is banking on to drive long-term growth. During Q3, the carrier posted FiOS net adds that were ~6% lower on a year-over-year basis, likely impacted by competition from cable broadband providers, such as Comcast (NASDAQ: CMCSA). That said, wireline EBITDA margins could improve year-over-year, driven by a higher mix of FiOS customers as well as improved cost control.

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