Shares of Verizon Communications (VZ, Financial) have risen by 6.5% in the last six months. It is one of the leading wireless and wire-line carriers and is doing really well for quite some time now. However, its recently reported third quarter results were mixed, wherein its earnings missed the Street's expectations and the revenue was ahead of it. This resulted in a slight decrease in its share price.
The mixed bag of results
Revenue surged 4.4% to $31.6 billion over last year. This was in line with the analysts' estimates. The top line was driven by a 4.5 % increase in consumer retail revenue and 1% growth in strategic services. Also, the company added 1.5 million wireless connections. This is 44% higher than last year's addition. It now has a total of 106 million wireless connections, which is remarkable.
Verizon's churn rate also increased to 1% as compared to 0.97% in the previous year. Also, ARPA rose 1% on a quarter-on-quarter basis. The wireless service revenue grew a staggering 4.8% during the same period. Through various strategic efforts, Verizon was able to increase smartphone sales by 21% and smartphone users now make 77% of the total postpaid customer base.
Although Verizon's bottom line surged, it was below the analysts' estimates. Earnings stood at $0.89 per share, a penny lower than what analysts were expecting.
Efforts made
Verizon has undertaken a number of initiatives to attract more customers. It made changes to the Edge plan. It has increased the number of monthly installments for the phones to 24 months from 20 months. This lowered the price of each installment, making it more attractive for customers. Also, it has announced an additional discount for Edge customers on its More Everything shared data plan.
These changes have helped Verizon compete with AT&T (T, Financial) better. Verizon's Edge is now very similar to that of AT&T's Next. However, AT&T still has an upper hand and expects 50% of its customers to opt for the Next financing plan. On the other hand, Verizon adoption rate of Edge is 20% only. However, the recent changes should help in adding more customers.
There are other smaller players which also are providing stiff competition to Verizon. For instance, T-Mobile is one of the companies which is benefiting the most from the launch of iPhone 6. This is because it provides the highest return for old iPhones. Therefore, people are turning to T-Mobile to exchange their iPhones for new ones.
However, Sprint (S, Financial) is having a tough time in attracting customers. It is suffering from a network overhaul which has resulted in a loss of 177,000 post-paid subscribers. Thus, it has reduced its prices and is promoting heavily in order to win back lost customers.
Finally
Verizon Communications is doing a great job of providing attractive offers and plans for the customers. This has resulted in higher equipment lease revenue for the company. It has also made its plans at par with its rival AT&T. Moreover, it has acquired EdgeCast Networks in January 2014, which will further boost its business. These factors, coupled with an existing foothold of the company make Verizon worth holding onto. Therefore, investors should hold onto this stock for the future.
