Key Takeaways From Verizon’s Q3 Results

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Verizon (NYSE:VZ) published its Q3 2017 results on Thursday, October 19, beating market expectations on revenues while largely meeting earnings projections, driven by its recent acquisitions and continued momentum in its core postpaid wireless business. In this note, we provide a brief overview of some of the factors that impacted the company’s results over the quarter.

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

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Wireless Operations Continue To Benefit From Unlimited Data Plans

Verizon’s wireless operations continued to perform well, driven by the reintroduction of its unlimited data offerings earlier this year.  While the carrier added a total of 603k retail postpaid subscribers, marking a 36% improvement over last year, smartphone additions were particularly strong at 486k, up from 242k in Q3 2016. Retail postpaid churn also remained low at about 0.97%, with retail postpaid phone churn standing at just 0.75%.

However, despite the reasonably strong performance on the subscriber acquisition and retention side, Verizon’s wireless service revenues continued to trend lower, declining by about 5.1% year-over-year to $15.8 billion due to a greater mix of customers on unsubsidized plans. Verizon notes that approximately 78% of its postpaid phone base is on unsubsidized service pricing plans, compared with 60% in the prior-year quarter. Verizon expects the service revenue declines to moderate over the fourth quarter.

Wireless EBITDA margins stood at 46.2%, compared with 44.9% in third quarter 2016, driven primarily by lower selling, general and administrative expenses, which likely benefited from the lower churn levels, as well as lower equipment costs. Last month, Verizon indicated that it was targeting slashing $10 billion in costs across its operations by 2021, potentially allowing it to improve margins further, despite saturation in the wireless market.

Media And Internet Of Things Businesses

Verizon also provided some updates on its emerging businesses, namely media and the Internet of Things. The company’s Oath division, which is focused on digital media, digital advertising, online services, and software, saw revenues of about $2 billion in Q3. Verizon said that Oath has about 1 billion monthly unique users across its Yahoo and AOL properties. That said, the business has a long way to go before it reaches its 2020 revenue target of between $10 billion to $20 billion (related: Where Will Verizon’s Oath Stand In The Digital Advertising Market?). Verizon’s telematics business, which includes its Fleetmatics and Telogis operations, saw revenues of over $220 million in the third quarter of 2017. The company said that its organic IoT (Internet of Things) and telematics revenues increased by about 13% year-over-year.

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