Will Verizon’s Postpaid Woes Continue In Q1?

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Wireless behemoth Verizon (NYSE:VZ) is slated to report its Q1 2023 results on April 25. We estimate that Verizon revenue will come in at about $33.8 billion for the quarter, roughly in line with consensus estimates and up just about 1% versus the last year. We project that earnings will stand at $1.19 per share, compared to consensus estimates of $1.20 per share. So what are some of the trends that are likely to drive Verizon’s results? See our interactive dashboard analysis on Verizon Earnings Preview for more details on how Verizon’s revenues and earnings are likely to trend for the quarter.

Verizon’s business has been seeing major headwinds of late, with the carrier falling behind in the lucrative postpaid phone market as T-Mobile leads the industry driven by its strong 5G network, while AT&T banks on aggressive promotions. Over Q4 2022, Verizon reported a net gain of 217,000 postpaid phone subscribers, excluding the impact of the decommissioning of its 3G network. This compares to T-Mobile which added about 927,000 postpaid phone subscribers. Most of the gains for the company have come from business customers, with its consumer segment continuing to face considerable headwinds. The company is also likely to face more competition from cable players such as Comcast, who are doubling down on the wireless business.

Verizon’s margins could also face some pressure, due to rising inflation, mounting competition, and slower top-line growth.  Verizon’s higher churn could also force it to step up spending on retaining customers. For perspective, over Q4, operating margins for the consumer business declined to 26.3%, down from 28.6% last year.

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That said, Verizon could see some incremental upside from its fixed wireless access broadband solutions which are gaining favor with consumers given their flexibility and low costs. Over Q4 the company added 379,000 new subscribers taking its total user base to about 1.4 million.

However, we remain marginally positive on Verizon stock despite the current weakness, with a $44 price estimate, which is 10% ahead of the current market price. Verizon has been rolling out its wideband spectrum quickly to reach more than 200 million people across the U.S.  This could help the company win over more subscribers and up-sell superior plans to its massive retail wireless base of over 120 million subscribers. Verizon’s valuation is also looking attractive. The stock  currently trades at just under 9x projected 2022 earnings, which is well below the levels seen in recent years. See our analysis on Verizon Valuation: Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers.

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Returns Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 VZ Return 1% 0% -27%
 S&P 500 Return 1% 8% 85%
 Trefis Multi-Strategy Portfolio 1% 9% 244%

[1] Month-to-date and year-to-date as of 4/17/2023
[2] Cumulative total returns since the end of 2016

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