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The Takeaways From Verizon’s First Quarter Earnings

April 27, 2014 | About:
Analyse360Degree

Analyse360Degree

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The largest U.S. carrier Verizon (VZ) came out with its first quarter results on Thursday. The Big Red completed the $130 deal of acquiring 45% stake in Vodafone Group which increased the carrier’s profits. Let’s take a closer look at some of the essential numbers of the quarter.

What do the Numbers say?

Verizon’s first quarter profits jumped 23% to $5.99 billion, which translates to $1.15 per share. In the last year comparable period, the telecom giant reported $4.86 billion in earnings. The sharp rise in income came in through the acquisition move in the early part of the year which helped it gain complete control of Verizon Wireless. Lowell McAdam Verizon’s chairman and chief executive proudly said that the company has recorded consistent double-digit growth in earnings in eight out of the past nine quarters.

Revenue of $30.82 billion, up 5% from last year same period beat Wall Street expectations of $30.66 billion. The wireless business was the key driver that improved 7% to $20.9 billion against last year. Thrashing analyst expectations, the New York based company had 549,000 new devices running on its network, of which 539,000 had opted for monthly service contracts. The other factor that boosted revenues was FIOS internet and TV services that earned revenue of $3.8 billion, up 6% on the back of higher FIOS demand.

Comparison with Closest Foe

Verizon’s net additions may have bettered analyst estimates, but it reflected the addition of 634,000 tablets, which indicates that the carrier lost subscribers of smartphones. Although the company added some smartphone customers for its 4G network, the positive effect was offset by loss of users using older devices that were running on dated technology. Handset subscribers are the most lucrative ones from which the company draws substantial portion of the revenue. Not just this, postpaid churn rate also increased to 1.07% relative to last year’s 1.01%.

In comparison, fellow player AT&T (T) recorded net addition of 625,000 postpaid customers out of which 449,000 were that of tablets. This indicates that the carrier added handset subscribers, while Verizon lost. Both the players reported higher margins, but the way AT&T did was different. The Dallas-based giant’s margins were assisted by the way it separated service cost and phone cost for the new plans.

Aggressive Competition

Although the overall quarter reported healthy figures, rising competition from smaller rivals is increasingly becoming a matter of concern for Verizon. T-Mobile (TMUS) is heavily promoting its services to actively compete with bigger rivals Sprint (S) and AT&T. The increased competition and efforts undertaken by T-Mobile is having a bearing on Verizon, although the former isn’t really targeting the big daddy as of now.

Departing Thoughts

Verizon key area of strength has been its unmatched network strength and coverage, and the quality it offers. Discounts on some of the family plans also help the company drive its revenue; in fact that’s one of the strong revenue drivers of the company. But the question that pops up is, is this sufficient to fight increasing competition. The challenge ahead is to retain customers who might move to networks of other carriers. Would be interesting to see how Verizon manages to keep its lead while competition increases.


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