Verizon Communications (NYSE:VZ) delighted its investors after it reported blockbuster second quarter results. The retailer was able to make its way out through a lot of problems, which had been hampering its results in the last few quarters. Problems such as stiff competition from cheaper rivals and inability to attract customers were leading to lower profits. Nonetheless, its efforts paid off as its numbers speak for itself. Let’s dig deeper.
Into the quarter
Revenue stood at $31.5 billion, a jump of 6% over last year. This was higher than the analysts’ expectations of $31.1 billion. This was driven by higher subscriber growth, slightly offset by lower customers’ phone bills. The company witnessed a growth of 50% in contract customers to 1.4 million. More post-paid customers added to the top line. Moreover, about 82% of the new customers were tablet buyers since tablets were in a lot of demand as compared to smart phones.
- Warning! GuruFocus has detected 4 Warning Signs with VZ. Click here to check it out.
- VZ 15-Year Financial Data
- The intrinsic value of VZ
- Peter Lynch Chart of VZ
The retailer also provided great discounts in order to attract more customers. This was mainly because discounts by other competitors such as AT&T (NYSE:T) had led to loss of customers. Although providing discounts on data plans did result in shrinkage of margins, it lured more and more people to its plans since it became cheaper by $5 on a 10GB plan. Also, it increased the free data allowance on many plans. It has also renamed its data plans to “More Everything,” the popularity of which helped in boosting customers’ usage. In fact, it now makes 55% of the post-paid accounts, up from 36% in the prior year.
Verizon also introduced a new financing plan called Edge, which provides an option to pay for their devices in monthly installments. Also, it provides quicker device upgrades and discounts on data plans. However, the plan was not marketed much by the company, which led to higher two-year customer contracts, which is accompanied with a discounted phone.
Strengthening FiOS segment
The FiOS segment registered double digit revenue growth, which resulted in a 5.3% increase in the consumer business. The consumer business provides broadband and video services and reported sales of $4.5 billion. Growth in the FiOS segment was driven by innovative pricing efforts, customer additions and the launch of Quantum service. Quantum service provides high-speed internet with a speed of 50-500 Mbps. Hence, 55% of its internet subscribers had subscribed to this service. Further, there is not much competition in this space.
Benefits from buyouts
Verizon’s acquisition of its remaining 45% stake in Verizon Wireless from Vodafone, in February, was also one of the bright spots which helped in driving revenue higher. The acquisition was indeed a smart move by the company and will strengthen its wireless business segment. Also, it acquired EdgeCast Networks, Inc. in January, enhancing its video delivery and web services capabilities.
However, even peers such as AT&T have resorted to acquisition strategy in order to grow. It plans to acquire DirecTV and Twenty First Century Fox. Also, it has made a bid for Time Warner Inc. These buyouts will be in addition to the purchase of Leap Wireless International Inc. in March this year.
Therefore, Verizon is indeed on the right path and is improving its business aptly. Its efforts into providing new plans and services, along with discounts on the existing ones have been driving customer attention. It has a healthy subscriber growth and its FiOS segment is also performing well. Further, its recently made acquisitions should continue to boost its sales. Hence, this company is worth a bet.