Verizon Earnings Preview: Unlimited Data Plans In Focus

Verizon (NYSE:VZ), the largest U.S. wireless carrier, is expected to publish its Q1 2017 earnings on April 20, reporting on a quarter that saw the company reintroduce its unlimited data plans amid competition from its smaller rivals. Below we take a look at what to expect when the carrier publishes earnings Thursday.

We have a price estimate of $52 for Verizon’s stock, which is slightly ahead of the current market price.

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Unlimited Plans Could Help Improve Postpaid Net Adds

While Verizon stopped offering unlimited data plans to most customers in 2011, it reintroduced the plans in February, as it looks to take on smaller rivals such as Sprint and T-Mobile, who have made unlimited data a centerpiece of their subscriber acquisition strategies in recent quarters, targeting data hungry users on a budget. We believe that the unlimited offering should allow Verizon to improve its postpaid net phone additions for the quarter. The carrier added 167k postpaid phone subscribers in Q4’16. That said, there is a possibility that overall postpaid churn figures could trend higher, as customers who signed up for tablets promos about two years ago come off their contracts.

ARPU Impact Of Unlimited Could Be Minimal

Verizon’s ARPU has come under some pressure in recent quarters, as subscribers migrated to plans that offered safety mode and data carryover last year. However, we believe it is unlikely that the unlimited plans will have a very material impact on overall ARPU. The new plans are priced at $80 per month for a single line or $45 per line for four lines, which is slightly higher than the $70 that Verizon’s current “L” plan that offers 8 GB of data (+ 2 GB per line). With the new unlimited plan, the carrier is potentially betting that it will be able to get enough users from its lower-tiered data plans to upgrade to the new unlimited plan in order to offset potential ARPU losses from heavy data users shifting down to the new offering.

Prepaid Business In Focus

Verizon has typically placed less emphasis on the prepaid market, due to the potential cannibalization of its high-value postpaid subscriber base. However, with its postpaid business underperforming over the last year, amid the defection of feature phone subscribers, the carrier has indicated that it would rather have subscribers move from its postpaid to prepaid offering, instead of losing them to rivals. In recent months, Verizon has been looking to improve its prepaid retail footprint, tying up with some distributors to exclusively sell its prepaid products in physical stores, in addition to launching new data-focused plans and bolstering marketing spending for its prepaid operations. We will be closely watching how the carrier’s prepaid operations trended over Q1.

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