Verizon Wireless has been the driving force for Verizon Communications' (NYSE:VZ) growth in the recent past, and yet again, the segment has resulted in substantial profits for the company. This might rekindle the debate about the future of the venture again; however, this is the time to focus on the earnings announcement and what it means for the investors of the company.
One of the most important things in the earnings announcement was the fall in the iPhone sales - which might suggest that Apple (NASDAQ:AAPL) fans are losing appetite for its products. While iPhone sales usually fall in the first quarter after the holiday period, this year the decline has been steeper than the previous year. Sales of iPhones for the carrier came down by 24% during the same quarter of the last year, compared with 33% this year. Verizon sold 4 million iPhones compared with 6 million it sold during the same time period last year.
Overall, there was something to be positive about for Apple - Verizon's iPhone activations grew by 25% year-over-year, but there was a caveat even in these growth numbers; most of the activations regarding iPhones were for older models, and only half of the sales came from the new iPhone 5. A fall in the sales of iPhone might also be due to the customers holding their iPhone purchases for the new release, which will happen later in the year.
Moving on to Verizon profits - the company reported a 4.2% jump in revenue to $29.4 billion compared with the same quarter last year. The net income of the company stood at$1.95 billion, showing an increase of 15.8% from a year ago. While the sales for smartphones are now growing at a slower pace than the past, the company has been able to get more from the customers. Verizon has been surprisingly able to retain its customers despite consistently increasing the charges. The main reason behind this is the widest wireless network in the country, in my opinion. Verizon has the best wireless network and the company is catering to almost 500 cities countrywide, which gives it a distinct advantage over its competitors.
Furthermore, revenue for Verizon Wireless was $19.5 billion for the quarter, showing an increase of 6.8% from the same quarter last year, and revenue from per account increased by 6.9% to $150.27. The company sold 7.2 million smartphones during the quarter, of which 4 million were iPhones. Despite an increase in the contract prices, the company was able to increase its contract subscribers by 35%, and added 677,000 new subscribers.
Is the Stock Fully Valued at Current Levels?
Verizon's stock hit its highest price levels in over a decade when the stock went up to $51.55 after the earnings announcement. So, is it fully valued at the current levels? No, I believe there is still upside potential. Verizon has been able to grow its business while most of its competitors have faced troubles to keep pace with this giant. Its wireless business has been growing at an impressive rate and if the company can carry on this impressive growth, there should be new highs for the stock.
Verizon's "share everything" plan is extremely successful and brings in a lot of new customers. The company offers unlimited calling, text and data packages that can be shared among a family of Verizon devices. The offer gives incentive to a whole family to carry Verizon devices. The plan has been extremely successful in bringing in new customers for the company, and it might be a big reason for the company to increase subscribers when the competition is losing its subscribers. Verizon's stock is perfect for investors who want to enjoy substantial growth while collecting healthy income. Verizon's dividend yield in excess of 4% is one of the highest among its peers - and serves as an important factor for a lot of its investors.
Verizon is enjoying the benefits of the massive cash outlays the company has done in the last two years. Verizon's capital expenditures have gone up substantially to increase its network coverage and performance. The company has become the preferred choice when it comes to wireless and data services; as a result, the future growth of the company will continue. Despite impressive financial performance and solid growth, the company is trying to further improve its network and services. Fourth-quarter sales are usually in record numbers for Apple's iPhone - we can expect a big jump in revenues and income in the fourth quarter; however, the next two quarters are also likely to show impressive growth due to the company's ability to get more out of the current customer base.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.