Verizon (VZ) continues to grow as the largest mobile phone company in the United States. Revenue generation looks good and so does its dividend- the company just looks like a good investment. I was skeptical that it could grow its FiOS TV/Internet service because of the fierce competition in this industry. Let's take a look at how successful this company is and why it proved I need not be concerned about FiOS growth.
A lot of analysts are still favorable with Verizon. Here are some of the positions I've read by different analysts:
- TheStreet Ratings team rates Verizon Communications Inc. as a Buy
- Canaccord Genuity reiterated its "buy" rating and price target of $55
- Oppenheimer retained an "outperform" rating and price target of $56
The company continues a strong performance as it did this last quarter with "better-than-expected earnings and revenue." The rare better-than-expected double performance (earnings coming in at $.77 a share while expectations were $.74 a share; revenue- $30.28 billion while analysts expected $30.16 billion) puts the company in an elite position this quarter because not many companies are doing this.
The excellent quarter shines in an otherwise lackluster quarter for the market as a whole. Verizon continues a successful pattern of profitability. The last three years, revenue has continued to grow along with gross profits. I would expect the next quarter for the company to be even better. While analysts favor the company because of its healthy revenue and dividend, I believe that we should keep looking for the mobile industry for the company's revenue to continue to grow. Some analysts have mentioned that it should sustain good growth in its FiOS TV/Internet segment.
If I am going to be honest, I must confess that I was not a believer in the company's FiOS TV/Internet venture as a growing revenue stream. This alternative to traditional cable TV service was introduced as an "all fiber optic connection" that boasts more channel selections, HD alternatives, a greater number of video-on-demand choices and faster Internet speed.
Cable companies have been falling from grace in the eyes of consumers for a number of years, would this be Verizon's chance to capitalize?
For a number of reasons, cable companies have been losing subscribers for some time now. In the second quarter of this year, Time Warner Cable (TWC) reported 191,000 lost subscriptions and DirecTV (DTV) reported 84,000 of the same. Both companies have used a strategy of retaining their most profitable households in a steady and mature "television subscription" market. In the United States, about 100 million households subscribed to some form of paid television.
Even though the company's fiber optic cables would provide better quality and faster service, I wasn't convinced that "superior service" would be a factor that could help Verizon alone. Considering the FiOS TV/Internet is only about 7.8% of its revenue source, I am wondering if this service will have any impact on the company at all.
Superior service was one quality, but pricing would also be another. DirecTV's average revenue per household (ARPH) is $98.73 while Time Warner cable comes in at $105.21. Verizon should come in at around $89.00.
Even if Verizon offers a better product for a little less, both Time Warner and DirecTV are shoring up their most loyal and lucrative clients and it won't be easy to lure them away. That leaves them with a less loyal bunch to pick and choose from along with the ever-increasing competition. Other alternatives include: Google TV (GOOG); Apple TV (AAPL); ROKU; Netflix (NFLX); HuluPlus and soon to be in the market Intel TV (INTC).
Even with what I consider the "odds stacked against them," Verizon proved me wrong and I cannot ignore the numbers. I would expect the company to grow its revenue core (mobile phone market) and it did. The company added 927,000 retail subscribers in the third quarter, which was pretty close to Wall Street's expectations of 1 million. While cable companies fight to maintain premium subscribers, Verizon's FiOS TV/Internet service added customers last quarter. It added 173,000 new FiOS Internet subscribers and 135,000 FiOS video subscribers.
Evidently there are enough households out there that are willing to turn to Verizon with its FiOS TV/Internet service. No matter what my preconceived notions were, like I just previously wrote, numbers can't lie. Verizon continues to grow its mobile phone subscriber market and is capitalizing on the cable companies' demise with its FiOS TV/Internet service. Do I even have to mention the generous dividend the company continues to give out year after year? Verizon continues to prove to me that it remains a good investment for both growth and income investors.
Author's Note: Verizon's "revenue" and "gross profit" figures were taken from Yahoo finance.