Why Has Verizon’s Stock Underperformed This Year?
Verizon (NYSE:VZ) has a had a relatively difficult year thus far, with its stock price declining by close to 13% year-to-date, making it one of the worst performing names in the Dow Jones Industrial Average. Below, we take a look at some of the reasons for Verizon’s recent under performance.
We have a price estimate of $53 for Verizon’s stock, which is over 10% ahead of the current market price.
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Lackluster Financial Performance
Verizon’s earnings have been relatively lackluster over the last few quarters, amid a loss of lucrative postpaid phone subscribers, weaker equipment revenues and flattish wireline sales. The carrier’s revenues declined by about 2.4% year-over-year during Q4’16. During Q1’17, the company’s revenue base continued to shrink (down 4.5% adjusted for acquisitions and divestitures), while its earnings also missed expectations. The carrier lost a net of 307k retail postpaid connections during Q1, including 289k phone losses.
Competition From T-Mobile And Sprint
Competition from smaller rivals T-Mobile and Sprint has been mounting, with both carriers running promotions targeted squarely at Verizon’s customers. For instance, Sprint is running a limited time promotion that essentially offers Verizon customers a year of free unlimited data and voice service. Last month, T-Mobile ran a promotion offering to pay the full balance of device payments and early termination fees for iPhone or Google Pixel users who have been on the Verizon network for over 60 days. These offerings could hurt Verizon’s churn figures, while pressuring it to run costly promos of its own.
Verizon Has Had To Rethink Its Unlimited Strategy
Earlier this year, Verizon had to reintroduce its unlimited data offering, marking a reversal of sorts from its recent strategy of getting subscribers to pay for data based on their actual usage and raising base pricing on certain plans. While the move helps the carrier 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, it could put pressure on the company’s network, while limiting the ARPU for its most lucrative customers.
Lack Of Big Ticket Deals From Verizon
With the U.S. wireless market saturating, carriers are looking towards acquisitions to drive growth. While Verizon’s key rival AT&T has been aggressively making big-ticket deals (it has agreed to buy Time Warner for about $85 billion last year, while acquiring DirecTV in 2015 for around $48 billion), T-Mobile and Sprint are reportedly exploring the possibility of a merger, considering that the regulatory environment appears to be more conducive to consolidation. Verizon, on the other hand, has been somewhat more circumspect, sticking to smaller strategic bets in areas such as digital advertising and high-band spectrum. The lack of big-ticket deals relative to its rivals, coupled with the intense competition, could be weighing on the stock (related: Verizon’s Lackluster Earnings May Strengthen The Case For A Big-Ticket Acquisition).
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