Verizon’s Q4 Earnings And What Lies Ahead For The Company In 2019

by Trefis Team
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Verizon (NYSE:VZ), the largest U.S. wireless carrier, published its Q4 2018 and full years results on Tuesday, reporting stronger than expected EPS driven by robust postpaid phone additions and cost-cutting. However,  revenues missed market estimates, and the company’s guidance for 2019 was also weaker than expected, causing the stock to decline by about 3% in Tuesday’s trading. Below we take a look at some of the trends that impacted the company’s results and what lies ahead for the company.

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Postpaid Phone Business Shines

Verizon added 653k postpaid phone subscribers over the quarter, marking an increase from 295k subscribers from the previous quarter, driven partly by the company’s “mix and match” offering, which allows family plan users to customize each line of their plan. While retail postpaid phone churn remained low at 0.82%, it marks a slight increase compared to Q3 due to higher competition in the market. For instance, T-Mobile posted its best holiday quarter in four years, adding 1 million postpaid phone customers. However, things have remained mixed on the revenue per account front, with ARPA falling slightly year-over-year to $135, partly due to some one-time items such as service credits to some customers. Considering the relatively sluggish growth on the revenue front, the company is counting on cost reductions to bolster its margins. While EBITDA margins for the wireless segment trended higher to about 42.5%, marking an increase of 270 bps year-over-year, the increase came primarily from lower equipment related expenses and lower SG&A costs.

Outlook For 2019

However, the company’s guidance for 2019 was somewhat lackluster, as it projected that revenues would see low-single-digit percentage growth, while adjusted EPS could remain flat year-over-year. This is partly due to a higher effective tax rate and its move to place additional spectrum into service, which reduces its capitalized interest, creating an EPS headwind. That said, 2019 could be an interesting year for the industry as carriers double down on 5G services. Verizon was the first company to deploy 5G on a commercial basis, launching its  5G home broadband product in four cities in October last year. The company has also indicated that it is likely to launch 5G smartphones in 2019, working with Samsung and Motorola. The company expects its capital expenditures for 2019 to increase to between $17 billion to $18 billion, compared to $16.7 billion last year, driven by its 5G rollout.

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