Verizon Focuses On Its Core Competency As Rivals Double Down On M&A
Verizon (NYSE:VZ), the largest U.S. wireless carrier by revenues, published a stronger than expected set of Q2 2018 results, driven by its wireless business, which saw an improved uptake of postpaid wireless plans. The company also raised its growth forecast to a low-to-mid single digit percentage, up from a low-single-digit outlook back in April. Below, we provide some of the key takeaways from the company’s results.
We have created an interactive dashboard analysis which outlines our expectations for the company for 2018. You can modify the key drivers to arrive at your own price estimate for Verizon’s stock.
Postpaid Phone And Smartwatch Additions
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Verizon’s postpaid phone subscriber base grew by 199k over the quarter, compared to a loss of roughly 24k customers in the previous quarter. The company’s connected device additions stood at 369k during the quarter, up from 359k in the year-ago period, driven by smartwatches such as the Apple Watch. While these plans are unlikely to add much for the company in terms of ARPU, they are helping the company limit churn levels (0.75% postpaid phone churn over Q2), as customers with more devices per account are less likely to switch carriers. Verizon’s wireless service revenues also returned to growth, rising by 2.5% on an adjusted basis in the quarter, ending several quarters of declines. The company had been witnessing declines in the figure due to a shift to unsubsidized plans, which have lower monthly service billings. 82% of the company’s base was on unsubsidized plans during Q2 2018, compared to about 75% in the year-ago period.
Verizon Will Double Down on Its Core Competency In Response To Rivals’ M&A
While the quarter was relatively strong for Verizon, there could be some challenges ahead with respect to the U.S. wireless landscape. The company’s smaller rivals T-Mobile and Sprint have agreed to merge in a deal that would create a larger and potentially stronger contender to Verizon and AT&T in the wireless market. As these two carriers have typically catered to the most price-conscious postpaid subscribers, it’s possible that they could pass on the cost savings from their merger in the form of lower pricing, hurting pricing in the wireless market. Separately, rival AT&T acquired Time Warner in order to bolster its original content portfolio, as the wireless market cools off.
However, Verizon appears to be staying away from high-profile deals, instead choosing to focus on its core competency, which is being the best-in-class wireless network. The company is investing significantly in its 5G network, with plans to roll out fixed wireless broadband services in four U.S. cities by the end of this year. Verizon already has a sizable millimeter wave spectrum, and the company entered into a deal with Corning last year to buy at least $1.05 billion worth of optical cable, which could drive the backhaul of its 5G network. There are also changes at the leadership level that indicate the company’s focus on technology, with the company’s Chief Technology Officer expected to take over as CEO after current CEO Lowell McAdam steps down at the end of this month.
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