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8 Things To Know About Verizon's Q4 And Full Year Report
- How did VZ fare in its first full quarter since increasing data allowances?
- How is Verizon's FiOS business performing; how is its its free cash flow, and other important metrics and businesses?
- What should investors expect looking ahead?
Verizon Reported Earnings: Where Do We Go From Here?
- Verizon Communications Inc. reported earnings on January 22, 2015.
- Investors were not impressed with the results, but the reasons for the declines were already partially priced in.
- Verizon has expanded its 4G customer-base, and data usage is up 50%, providing greater opportunities for heightened revenue in 2015 and beyond.
- New sources of revenue are providing a more diverse stream of revenue which hedges against other areas of weakness.
Update: Verizon Q4 Margins Remain Under Immense Pressure
- Verizon Communications reported Q414 earnings.
- The stock is an avoid.
- The investment thesis remains intact that investors should avoid the stock until the pricing pressure in the domestic wireless markets dissipates.
- Verizon recently announced full year 2014 earnings results.
- For the quarter the company posted a loss due to actuarial pension adjustments.
- However, on an adjusted basis the year-over-year earnings were quite a bit higher.
One Encouraging And Overlooked Metric From Verizon's Q4 Earnings Report
- VZ suffered in many areas due to its entrance into the price wars during Q4.
- Despite its decision to increase data allowances, data consumption continues to grow at a mind-boggling rate.
- Assuming VZ doesn't double or triple data allowances over the next three years, it and AT&T could still have a lot to gain in the wireless industry.
Update: Verizon - Is The End Of The Dividend Growth Story In Sight?
- Solid Q4 headline numbers but worrying underlying metrics.
- Consolidated EBITDA fell -4.7% in the quarter (-8% in wireless!) while EBITDA was up 17% in Q1. Needless to say that comps will be extremely tough in H1.
- Should the EBITDA decline in 2015, Verizon could reassess its dividend growth policy.
- The whisper number is $0.74, one cent ahead of the analysts' estimate.
- Verizon has a 49% positive surprise history (having topped the whisper in 20 of the 41 earnings reports for which we have data).
- The overall average post earnings price move is 'positive' (beat the whisper number and see strength, miss and see strength) when the company reports earnings.
Verizon Earnings Preview: Postpaid Subscriber Adds, Margins, Churn In Focus
- For the fourth quarter, the company expects postpaid gross adds to grow both sequentially as well as year-over-year.
- However, growing competition and the ongoing price war in the U.S. wireless market will continue to put pressure on Verizon's EBITDA margins in the fourth quarter.
- The company's churn rate is likely to be negatively impacted as price sensitive customers switch to other less expensive service providers.
- Verizon Reports Earnings on January 22, 2015, expect these topics.
- Verizon is a long term strategy with a hefty dividend.
- Verizon has had a good 2015 so far and is up 2.59% vs. an S&P 500 loss of -1.92%.
- Verizon's FiOS service have been one of its better growth drivers in recent years.
- That double-digit growth might come to an end over the next year, thanks to the rise of two superior services.
- While growth could stall in 2015, FiOS revenue might eventually decline, and possibly become next to nothing.
Verizon: Headwinds Priced In - Long-Term Value Play
- Verizon is well positioned as a leader in the telecom industry.
- Good long-term growth prospects from M2M, connected devices and tablets.
- Verizon has to closely watch its service's churn rate.
Verizon Battles Higher Churn, Lower Margins While Preparing To Release OTT Service
- Sprint and T-Mobile taking a bite out of Verizon's customer base.
- Gaining almost 1 million new customers, Sprint may extend pricing strategy further into 2015.
- Verizon looking to launch OTT service in the second half, with no similar historical model to guide its potential.
- Verizon has not had a good 2014.
- A recent profit warning sent shares lower by over 10%.
- However, margin pressures are likely short-term in nature.
- With the stock trading near a 52-week low, now is a good time as ever to buy this income favorite.
- Most high yield stocks are not projected to grow their earnings per share quickly enough to appear undervalued based on my DRAG framework.
- However, thanks to an improving return on invested capital, its lack of economic sensitivity and a compelling dividend yield, Verizon scores well in this analysis.
- Its balance sheet is highly leveraged due to its acquisition of the remainder of Verizon Wireless, which is one negative for conservative investors and something worth monitoring.
- Nevertheless, the DRAG model suggests shares in Verizon could return more than 30% in 2015 thanks to a combination of earnings growth and multiple expansion.
Verizon, A Case To Go Long: Innovation And Technology Beyond Its Peers
- Verizon Communications Inc. is a solid company with consistent growth.
- Telecommunications companies need to focus on retaining customers, not just obtaining customers.
- Verizon successfully tested Ciena Corp’s optical transceiver technology.
- Verizon is becoming a leader in solar investments.
Verizon Currently On The Clearance Rack, Time To Buy
- Verizon is currently on sale as a price war has broken out in the telecom space.
- The sell-off in telecom shares offers a patient long-term investor an appealing entry point.
- As detailed below, I expect Verizon to return roughly 60% over the next five years.
- Wireless service providers have been forced to compete on price, leading some competitors to cut margins and increase subsidies, while AT&T and Verizon stand strong due to brand.
- Verizon is currently trading at an unjustified discount of over 20% providing investors an entry point to realize capital appreciation and income generation through a healthy dividend.
- Using comparable analysis, forward looking multiples, and a dividend discount model Verizon is steeply undervalued.
- VZ faces lower margins, higher wireless disconnects and the daunting task of paying off $110 billion in debt, paying dividends and making capital investments.
- The only way to alleviate these issues is with higher margins.
- A REIT could drive profits higher and create shareholder confidence in the process.
Thu, Jan. 22, 9:47 AM
- Verizon (VZ -1.7%) added 2.1M net retail wireless connections in Q4, of which 2M were postpaid (672K postpaid phones). That's up from 1.7M and 1.6M a year ago, and indicates Big Red continues to hold its own competitively in the fact of T-Mobile/Sprint's aggressive promotions. Prepaid net adds totaled 86K, and the wireless retail base stood at 108.2M (102.1M postpaid) at quarter's end.
- On the other hand, Verizon's own promos led wireless service revenue growth to fall to 2.8% Y/Y (to $18.2B) from Q3's 4.8%, Q2's 5.9%, and 7.5% in Q1. And a 74.4% increase in equipment revenue (thanks to phone upgrade plans and the iPhone 6) led wireless op. margin and EBITDA margin to fall to 23.5% and 42% from 29.5% and 47% a year ago. Retail postpaid churn jumped to 1.14% from 1% in Q3 and 0.96% a year ago.
- Wireline revenue fell 1.6% to $9.6B, with a 4.1% increase in consumer retail revenue (lifted by FiOS) offset by 3.7%, 4.6%, and 5.8% drops in small business, enterprise, and wholesale revenue. Wireline op. margin and EBITDA margin rose to 4.4% and 23.9% from 1.2% and 22.5% a year ago.
- 145K FiOS Internet and 115K FiOS TV subs were added, bringing the respective bases to 6.6M and 5.6M. Wireline voice connections fell by 6.1% Y/Y to 19.8M.
- Verizon is guiding for "at least 4%" 2015 revenue growth, above a 2.6% consensus. Adjusted EBITDA margin is expected to be "consistent" with 2014 levels. While AT&T is cutting capex in 2015, Verizon plans to slightly increase capex to $17.5B-$18B from 2014's $17.2B.
- Verizon says it has 15M Internet of Things (IoT) connections. BTIG's Walter Piecyk observes 1.7M tablets were sold, average data usage for More Everything accounts rose 50% Y/Y, and wireless EBITDA fell for the first time since 2011 (when the iPhone 4S launched).
- Q4 results, PR
Thu, Jan. 22, 7:02 AM
Wed, Jan. 21, 5:30 PM
Wed, Jan. 21, 4:09 PM
- Two day after reporting on Google's (GOOG +2.2%) SpaceX investment (confirmed a day later), The Information reports Google (GOOG +2.2%) is getting ready to "sell mobile phone plans directly to customers and manage their calls and mobile data over a cellular network."
- Google won't be building its own network, but will instead operate as an MVNO leveraging Sprint (S +5.8%) and T-Mobile's (TMUS +1.9%) networks. Deals for wholesale network access are reportedly on the way. Sprint and (to a lesser extent) T-Mobile have caught a bid on the report.
- Becoming a U.S. mobile carrier with Sprint/T-Mobile's help risks upsetting AT&T (NYSE:T) and Verizon (NYSE:VZ), who still tower over the local telecom landscape. However, it also gives Google a chance to experiment with novel/low-cost service plans, perhaps with the hope that other carriers (in the U.S. and elsewhere) will follow suit. Google also might be betting Android is too well-entrenched at this point for AT&T and/or Verizon to respond too harshly.
- Last April, The Information reported Google has discussed offering mobile services in Google Fiber markets. Q4 results arrive in eight days.
- Update: The WSJ is backing up The Information's report. It adds Sprint is "hedging its bet by putting a volume trigger into the [Google] contract that would allow the deal to be renegotiated if Google’s customer base swells."
Wed, Jan. 21, 9:47 AM
- Barclays has cut Verizon (VZ -0.6%) to Equal Weight ahead of tomorrow morning's Q4 report, and slashed its target by $3 to $51.
- The firm thinks 2015 will likely be a transition year for the carrier, doesn't expect major industry consolidation given a hostile regulatory environment, and believes competitive pressures will remain intense.
- Q4 expectations are already low, given Verizon stated last month it saw higher churn and EBITDA margin pressure amid strong phone upgrade activity and major price cuts/promos from T-Mobile and Sprint. More recently, the company promised wireless margins would "return to historical levels" in Q1.
- T-Mobile has said it added 1.28M branded postpaid subs (1.04M phone subs) in Q4, evidence of fresh share gains. Sprint has said it added 30K postpaid subs, a reversal from calendar Q3's 272K decline.
Sun, Jan. 18, 12:57 PM
- TechCrunch reports Google (NASDAQ:GOOG) is interested in acquiring Softcard, the mobile payments platform launched by AT&T (NYSE:T), Verizon (NYSE:VZ), and T-Mobile (NYSE:TMUS) in 2010 - it was previously known as Isis, before changing its name for obvious reasons. Though Softcard's owners have invested hundreds of millions in the venture, sources state Google's purchase price could be below $100M.
- Like Apple Pay and Google Wallet, Softcard relies on NFC radios to enable transactions. And like Wallet, it has struggled to get off the ground, as U.S. consumers overwhelmingly stick with card swipes. Hard data on Apple Pay usage remains limited for now.
- Softcard recently laid off 60 employees. Meanwhile, it was reported in 2013 that Google had spent $300M on Wallet-related acquisitions, with little to show for it. The adoption of EMV (chip-and-PIN) readers by U.S. retailers could give NFC solutions a boost, by making card payments a little less convenient.
- The WSJ reports Google is partnering with consulting giant PwC to bid on a $2B+ contract to update the DoD's electronic health records system. PwC says Google's tools could both improve the system's security and performance, and lower costs. A group featuring IBM, HP (NYSE:HPQ), and CSC has made a rival bid.
- Ad tech firm Marin Software (NYSE:MRIN) provides some encouraging mobile search data ahead of Google's Jan. 29 Q4 report. A Marin study found mobile accounted for 49% of Q4 U.S. search ad spend, up from 42% in Q3, and that smartphone ad click rates were 38% higher than PC rates (thanks in part to accidental clicks?). On the other hand, mobile still only accounted for 32% of conversions.
- Medium writer Backchannel provides a deep dive into Google Search's evolution in an era where users increasingly want search engines to know the precise meaning of their queries. Part 1 looks at Google's efforts to optimize for mobile (aided by its Knowledge Graph and Google Now). Part 2 looks at Google's real-world research into the information needs of users. Part 3 looks at Google's investments in A.I./deep learning to deliver far more intelligent search results and spontaneously surface useful information.
Wed, Jan. 14, 4:08 AM
- Building on his previous call for the FCC to regulate broadband service as a utility, President Obama will push the FCC today to overturn state laws that prevent cities from building their own broadband networks.
- The centerpiece of the initiative is a call for the FCC to pre-empt laws in 19 states that can prevent cities and localities from building their own high-speed broadband networks.
- FCC Chairman Tom Wheeler has already indicated that he is strongly considering the move.
- Related Tickers: CMCSA, T, VZ, TWC, NFLX, CTL, CHTR, FTR, ELNK
Tue, Jan. 13, 6:41 PM
- Verizon Vehicle, expected to be available in Q2, provides a slew of telematics services through a system featuring a reader that plugs into a car's diagnostics (OBD) port, a Bluetooth speaker, and a smartphone app. The speaker contains a button for connecting to assistance services, and another for making an SOS emergency call.
- Supported features include GPS-based roadside assistance, automotive diagnostics (i.e. deciphering the meaning of a "Check Engine" warning), stolen vehicle location, a mechanic's hotline, and a vehicle locator. The Verge: "Many (if not most) of these features are available from a modern car's built-in systems, but Verizon's targeting a potentially huge market: older cars with tech-savvy drivers."
- Verizon (NYSE:VZ) is charging $14.99/month for the first vehicle (hardware included), and $12.99/month for each additional one. GM's rival OnStar service (dropped Verizon as its wireless provider for AT&T with 2015 models) has 7M subscribers in North America and China, and is available with 30+ GM vehicles.
Thu, Jan. 8, 4:43 AM
- "There's always speculation around us because we have taken a company that was not doing well and ended 2014 with two straight years of growth," announced AOL (NYSE:AOL) chief executive Tim Armstrong, dismissing talks of possible mergers.
- The company had recently been linked to rumors of a possible joint venture with Verizon (NYSE:VZ) and a merger with Yahoo (NASDAQ:YHOO).
- Previously: Verizon CEO throws cold water on AOL acquisition rumor (Jan. 06 2015)
Tue, Jan. 6, 6:09 PM
- In addition to throwing cold water on AOL acquisition talk, Verizon (NYSE:VZ) CEO Lowell McAdam has declared the carrier will launch a "mobile-first" video service in 2H15, and has finished negotiating all of the needed content deals. Yesterday's Bloomberg report mentioned Verizon's interest in AOL was mobile video-related.
- McAdam has previously mentioned Verizon is in talks to offer a Web/mobile TV service. The company is a year removed from buying the assets of Intel's would-be online TV unit. Yesterday, Dish announced its online TV service (christened Sling TV, includes ESPN, TNT, and CNN) would cost just $20/month.
- Also: Verizon reiterates it saw elevated mobile churn in Q4 (previous), as well as stronger-than-expected phone upgrade activity and EBITDA margin pressure. However, it expects wireless margins to "return to historical levels" in Q1. Q4 results are due on Jan. 22.
Tue, Jan. 6, 11:21 AM| Comment!
Mon, Jan. 5, 7:37 PM
- Bloomberg reports Verizon (NYSE:VZ) approached AOL about a possible takeover or JV to expand its mobile video offerings. No "formal proposal" has been made.
- Reporter Alex Sherman states Verizon's main interest is in mobile video, and that it's unclear if Verizon has any interest in AOL's media properties (Huffington Post, Engadget, TechCrunch, etc.). A JV would reportedly cover ad technology; AOL is a major player in the fast-growing programmatic (automated) online ad-buying market.
- AOL is #3 on comScore's rankings of U.S. online video property owners (behind Google/YouTube and Facebook), and is #4 on its rankings of U.S. video ad platforms (in terms of reach). The company also maintains a dial-up ISP base that (as noted by a source) Verizon could try converting to FiOS.
- Activist Starboard Value has been pushing for Yahoo and AOL to merge. Verizon's track record with Web/mobile content is pretty spotty.
- AOL +10.6% AH.
Thu, Jan. 1, 2:19 AM
- Dow: INTC +41%; UNH +35%; HD +28%; CSCO +25%; MSFT +25%.
- S&P 500: LUV +125%; EA +106%; EW +95%; AGN +92%; AVGO +91%.
- Nasdaq: AAL +112%; EA +106%; AVGO +91%; GMCR +78%; ILMN +68%.
Dec. 31, 2014, 2:31 PM
- "AT&T (T -1.1%) will find new ways to cause their customers pain [in 2015] - especially those still on grandfathered unlimited plans," predicts T-Mobile (TMUS +0.3%) CEO John Legere, feisty as ever while making his 2015 predictions. The FTC recently sued AT&T for throttling the data speeds of unlimited plan users.
- Legere, whose company has unleashed a margin-crimping price war against over the last two years, also forecasts AT&T will launch a "knock off" version of T-Mobile's Data Stash feature, which lets users roll over unused data from monthly buckets for up to 12 months. "The fine print will be massive, and they’ll miss the first and most important step in the process – which is to stop punishing their customers with domestic overages and instead get rid of them."
- He isn't any kinder to Verizon (VZ -0.8%), predicting Big Red will "keep trying to baffle American wireless customers with BS promos, like the one they did this year telling customers they could get a free iPhone 6 (don’t forget to read the small print!), as well as misleading advertising about everything from coverage maps to device trade-ins."
- As for share-losing Sprint (S +0.6%), Legere sees them "continue throwing out campaigns, offers and promotions – anything to see if it sticks." By mid-year, he expects the carrier to "realize they can’t slash their way to growth and start to invest in their network and customer care."
- Two things Legere has kind words for (besides T-Mobile): 1) Apple Watch (NASDAQ:AAPL), which he predicts will "mark the tipping point when wearables go from niche to mainstream." 2) Phablets, which he expects will see 50% sales growth next year and thereby boost data usage.
- One positive prediction for the industry in general: Legere forecasts 2/3 of devices sold next year by carriers will be subsidy-free, up from 41% in 2014. The margin improvement that has come from moving customers from subsidies to early-upgrade and installment plans has been a silver lining for the industry during its price war.
Dec. 24, 2014, 9:09 AM
- Facebook (NASDAQ:FB) signs a deal with the NFL for the rights to video clips.
- The league has been tight with access to game highlights in the past, even precluding some broadcast partners from streaming game video clips to mobile devices.
- The video highlights on Facebook will be followed by advertisements from Verizon (NYSE:VZ).
- The initiative starts next week just in time for the start of the NFL playoff season.
- What to watch: The high-profile deal could send a chill through the C-suites of broadcasters due to the NFL's strong ties to Madison Avenue ad agencies.
Dec. 17, 2014, 11:18 AM
- "Our downgrade reflects higher costs of spectrum, higher churn and lower margins due to intensifying wireless competition and lower target multiples to reflect an uncertain outlook as the competitive landscape shifts," says Goldman, cutting its rating to Neutral and lowering its target by $7 to $48.
- The firm has cut its Q4 Verizon (VZ -0.1%) EPS estimate by $0.06 to $0.71, and its 2015 estimate by $0.14 to $3.67.
- Goldman's move follows a Dec. 8 warning (blamed on promos, strong phone upgrades, and growing retail postpaid disconnects) that prompted a Macquarie downgrade, as well as cautious remarks from other sell-siders about growing price pressure.
- Verizon is close to its 52-week low of $45.09. Shares go for 19x 2015E EPS after factoring net debt. The dividend yield is at 4.8%.
VZ vs. ETF Alternatives
Verizon Communications Inc. is a provider of communications, information and entertainment products and services to consumers, businesses and governmental agencies. Its two segments are Wireless and Wireline.
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