Verizon Stumbles As Telecom Wars Heat Up

Verizon Stumbles As Telecom Wars Heat Up

Verizon is trading lower today after the telecom giant reported lower-than-expected earnings and fewer net additions in its postpaid segment

By Hassan Ali on Apr 24, 2014 at 12:01 pm EST

Verizon Communications Inc. (VZ) reported its financial and operational results for the first quarter of its 2014 fiscal year (1QFY14; ended March 31, 2014) today. The New York-based company exceeded revenue expectations, but could not manage to meet earnings estimates.

The largest wireless services provider in the US reported per share earnings (EPS) of $0.84, missing estimates by $0.02. Revenue estimates, on the other hand, were beaten by $110 million, with the reported figure coming to $30.8 billion, a 4.7% increase year-over-year (YoY). Financials reported for the quarter include the one-time impact of Verizon’s purchase of a 45% stake in Verizon Wireless previously held by Vodafone.

Verizon shares are in the red today, down almost 1.9% as of 10:24 AM EDT.

Verizon Wireless

Verizon Wireless sales rose 6.9% YoY to $20.9 billion, spurred by growth in service revenues. Service revenues totaled $18 billion for the quarter, an increase of 7.5% YoY. Retail service revenues, which account for the wider consumer base, were $17.2 billion, 6.7% higher than the year-earlier period. Retail postpaid ARPA (Average Revenue per Account) was $159.67, up 6.3%.

The segment’s operating margin expanded to 35%. Last year, margins for the same period were 32.9%.

The company added a net 549,000 retail connections, of which 539,000 were retail postpaid adds. The new connections took Verizon’s total retail connections to 103.3 million, of which 97.3 million are postpaid connections. Growth in retail connections was 4.4% YoY.

Smartphones accounted for over 72% of the Verizon Wireless postpaid customer base, up 2% from the end of last year. The churn rate in the retail postpaid segment climbed six basis points (bps) to 1.07%, while the overall retail churn rate climbed 7bps to 1.37%, reflecting increased competition in the telecom industry, mainly from T-Mobile US Inc. (TMUS).

Wireline Segment

Consumer revenues in the Wireline segment increased 6.2% YoY to $3.8 billion as ARPU (Average Revenue Per User) climbed to $120.17, an increase of 11.3%.

FiOS, the company’s broadband service, continued to lead growth in the segment, with revenues climbing 14.6% YoY to more than $3 billion for the first time. The company added 98,000 new connections for FiOS internet services and 57,000 new connections for video services. The total subscriber base for these services grew 9.9% and 8.7%, respectively.

Revenues from Strategic Services extended to global enterprise customers increased nearly 2%, and the operating margin for the segment expanded from 0.1% to 1.5% in 1QFY14.

Verizon Communications Outlook

The telecom giant affirmed its topline growth expectations of 4% for the year, anticipating growth in both the Wireless and Wireline businesses. Verizon also expects its EBITDA margin to continue expanding in both segments.

Analysts’ consensus estimates put full-year earnings at around $3.50 per share, on revenues of around $125 billion.

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