Telecommunications giant Verizon Communications Inc. (VZ, Financial) reported its third-quarter earnings last week. The company added a significant number of wireless subscribers during the quarter, which pushed the stock higher.
Snapshot of the quarter
The wireless provider reported adjusted earnings per share (EPS) of 98 cents, in line with estimates. Revenue for the quarter came in at $31.72 billion, beating estimates of $31.45 billion.Â
The company’s operating income stood at $7.21 billion, up from $6.54 billion in the same period last year. The telecom giant reported a net increase of 603,000 retail postpaid connections, which included 248,000 smartphone subscribers and 91,000 tablet additions. The company’s wireless service revenue stood at $15.8 billion, which was down from $16.3 billion in the prior-year quarter.
Verizon posted a postpaid churn rate of 0.97% and a retail postpaid churn rate of 0.75%.
Challenges ahead
In order to compete with Sprint (S, Financial) and T-Mobile (TMUS, Financial), who are offering massive incentives and discounts, Verizon unveiled its unlimited data plan earlier this year. The plan gives customers unlimited monthly internet access for a fixed rate. The telecom giant said the plan has increased network usage of LTE, which now accounts for more than 50% of the accessible low and mid-band spectrum.
In addition to the huge discounts provided by Sprint and T-Mobile, the two companies may consolidate to effectively compete against larger industry players, which could put Verizon and AT&T Inc. (T, Financial) in a tough spot.
During the third quarter, Verizon lost 18,000 Fios video customers to other streaming services. Due to an increase in the cell phone costs, many customers have opted for the monthly payment scheme. Phone subsidization has gone down as 78% of Verizon’s postpaid phone services have been converted to unsubsidized plans.
Looking ahead
Overall, Verizon appears to be in good shape. The company’s budding internet of things (IOT) business also performed well during the quarter and is undoubtedly the company's fastest-growing segment. Moreover, the company’s media segment, Oath, generated $2 billion in revenue during the quarter. Verizon looks forward to maximizing profits in the long run. CEO Lowell McAdam is working to trim $10 billion in costs over the next four years.
The company has provided guidance for the year, expecting EPS of $3.76 and $124.95 billion in revenue. In addition, the company projects capital spending to come in between $16.8 billion and $17.5 billion. Time will tell whether Verizon is able to meet its projections.
Disclosure: I do not hold any positions in the stocks mentioned in this article.
