Verizon Posts Robust Subscriber Gains, but Media Business Falters — The Motley Fool

Telecommunications giant Verizon Communications (NYSE:VZ) posted third-quarter earnings results today, which were highlighted by better-than-expected subscriber additions in its core wireless business. Hans Vestberg officially took the reins as CEO during the quarter, following Lowell McAdam’s retirement in August. Verizon also launched the first commercial 5G service earlier this month, which will compete with home broadband providers.

Verizon Communications results: The raw numbers

Data source: Verizon.

What happened with Verizon Communications this quarter?

Big Red added 515,000 retail postpaid net additions in the third quarter, including 295,000 net phone additions. Analysts were expecting the company to add just 161,000 net phone subscribers. Postpaid smartphone net additions were 510,000, and Verizon added 300,000 other connected devices, mostly wearables. Tablet losses were 80,000.

• Oath, Verizon’s media subsidiary, saw revenue fall 7% to $1.8 billion. Verizon no longer expects Oath to hit its previously stated target of $10 billion in revenue by 2020.
• Oath CEO Tim Armstrong resigned on Oct. 1, and Oath COO Guru Gowrappan replaced him.
• Capital expenditures decreased to $2.1 billion.
• Verizon rolled out the world’s first commercial 5G service.
• Verizon’s board declared a quarterly dividend increase to $0.6025 per share.
• Approximately 83% of the company’s postpaid phone base are now on unsubsidized service plans, compared to 78% a year ago.
• Verizon lost 63,000 Fios Video connections during the quarter, but added 54,000 Fios Internet connections.
• Wireless segment EBITDA increased 10% to $11 billion.

Image source: Getty Images.

What management had to say

“Verizon has posted a third quarter of strong operational and financial performance,” CEO Hans Vestberg said in a statement. He continued:

With the beginning of the 5G era in this fourth quarter, we expect that trend to continue. We are investing in networks, creating platforms to add value for customers and maintaining a focused, disciplined strategy. Verizon is best positioned to take full advantage of the opportunities offered by the new game-changing generation of technology.

Capital expenditures are coming in lower than expected, which CFO Matt Ellis attributed to greater cost efficiencies. “This reflects the benefits from our business excellence program which has allowed us to make all of the planned investments while aggressively advancing the 5G ecosystem and transforming our structure to deploy the intelligent edge network,” Ellis said. “This architecture will provide both [capital expenditure] and [operating expense] efficiencies compared to the networks of the past.”

Looking forward

In terms of guidance, Verizon still expects full-year revenue to grow at “low-to-mid single-digit percentage rates.” The company now expects to spend much less on capital expenditures, with full-year spending expected at $16.6 billion to $17 billion, down from its prior guidance of $17 billion to $17.8 billion.

Adjusted earnings per share should still grow in the low-single-digit percentage rates, before factoring the net impact of tax reform and a new revenue recognition standard. Verizon still expects its effective tax rate for 2018 to be at the low end of the range of 24%-26%.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.