Verizon stock has lagged far behind the S&P 500 this year.
David Paul Morris/Bloomberg
Verizon Communications
‘ stock, under pressure for months, is getting some relief on Wednesday following the release of the company’s third-quarter results. The telecom giant showed improving subscriber growth numbers for the second straight quarter, as well as progress on its strategy of moving customers to higher-revenue plans in the 5G era. And also for the second quarter in a row, Verizon management raised their forecasts for earnings and revenue this year.
Verizon stock (ticker: VZ) was up roughly 1.3% shortly after Wednesday’s open, to about $53, following the earnings early that morning. The stock has lost about 7% this year after dividends, versus a 22% return for the S&P 500. The shares currently yield 4.9% annually. Rivals T-Mobile US (TMUS) and AT&T (T) have lost about 12% and 4%, respectively.
Verizon reported $1.55 in earnings per share in the third quarter, ahead of analysts’ average estimate of $1.35 and up from $1.05 in the same period in 2020. Adjusted for one-time costs and benefits, Verizon earned $1.41 per share last quarter, versus Wall Street’s $1.37 consensus and $1.25 a year ago.
Revenue came in at $32.9 billion, about $700 million above the average forecast and up by 4.3% year over year. The third-quarter 2021 figure includes two months of Verizon Media revenues; the majority of the division was sold later in the period.
Verizon’s adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—were $12.3 billion, narrowly ahead of consensus, and its net income was $6.6 billion, about $1 billion more than the average call among analysts. Those profit figures were up 3.3% and 45.5%, respectively, from the third quarter of 2020.
Verizon has managed to increase its revenues and earnings this year despite volatile performance on the subscriber-growth front: A decline in customers in the first quarter of the year was followed by a big beat in the second quarter. For the first half of 2021, Verizon added 24,000 postpaid subscribers—an all-important metric for wireless companies that refers to subscribers who receive a monthly bill.
For the third quarter reported Wednesday, Verizon said it added a net 699,000 postpaid subscribers, well ahead of Wall Street’s 435,700 consensus estimate. About 429,000 of those were postpaid phones, while analysts as a group had been looking for 310,600. Verizon lost a net 4,000 prepaid subscribers last quarter, versus Wall Street’s estimate of a 6,400 gain.
The U.S. wireless industry has been aggressive in terms of promotional efforts to boost sales in recent months, with deals tied to the new Apple (AAPL) iPhone lineup offering as much as a $1,000 subsidy for some customers. That didn’t hurt Verizon’s profit margins in the July to September period, but did perhaps weigh slightly on average revenue per user, or ARPU.
That metric came in at $43.07, versus the $43.18 consensus. AT&T and T-Mobile could likewise see strong account growth but with ARPU under pressure in their upcoming quarterly reports.
“While we think weakness in ARPU may reflect underlying competition, there is little to quibble with, especially given Verizon has pulled back on its promotions,” wrote New Street analyst Jonathan Chaplin after the report on Wednesday morning. “…Verizon’s strong adds are not a huge surprise, and we would expect a similar theme from the rest of the group. More surprising is strong margins in the face of big promotions.”
Verizon’s broadband business did well in the quarter too, adding 98,000 customers, about equal to what analysts had been forecasting. The company also added 55,000 fixed wireless access customers, a figure it disclosed for the first time last quarter. Those are internet subscribers who receive their home broadband service over Verizon’s wireless network.
The third-quarter performance gave Verizon management the confidence to increase their profit and revenue guidance for the full year 2021, following a similar lift three months earlier. Management’s forecast now calls for adjusted earnings per share of $5.35 to $5.40 in 2021, implying $1.26 to $1.31 in the fourth quarter. The Wall Street consensus currently stands at $1.27 for that period.
Verizon management also said Wednesday that they see wireless-service revenue growth of around 4% in 2021, versus their guidance from a quarter ago of 3.5% to 4% and a forecast at the beginning of the year for “3% plus” growth.
Verizon’s long-term strategy in the 5G era is based on its ambition to have the industry’s best wireless network and to monetize it in several different ways from both consumers and businesses. Competition from other wireless and cable companies and investor skepticism about whether strong subscriber trends are sustainable are behind the 2021 weakness in Verizon’s stock.
“Our strategy is working and I’m confident in the strategy will help to deliver both strong results and premium experiences going forward,” Verizon CEO Hans Vestberg said on Wednesday morning’s earnings call. “As we look ahead, we continue to focus on expanding our 5G leadership, capitalizing on wireless momentum, and work towards our C-band launch, deploying differentiating experiences for our customers, and execute our network-as-a-service strategy.”
AT&T reports on Thursday morning, and T-Mobile reports on Nov. 2 after the bell.
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