Verizon: FiOS Growth Makes This Telecom A Strong Buy

| About: Verizon Communications (VZ)
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Verizon (NYSE:VZ) recently launched online access to the NFL Network. The addition of the NFL network for Verizon's FiOS TV online gives customers who receive the service as part of their package the ability to view programming online from anywhere in the U.S. Verizon's FiOS service, apart from increasing the company's wire line revenues, has allowed the mobile giant to trade at multiples that are beneficial to its shareholders. The growth stories surrounding the FiOS network justify Verizon's price multiples.

Verizon had a total of 5.3 million FiOS Internet and 4.6 million FiOS Video connections at the end of the third quarter, representing year-over-year increases of 14.4% and 15.4%, respectively. FiOS internet penetration was 37% at the end of the third quarter of 2012, compared with 34.6% at the end of the third quarter of 2011. FiOS Video penetration was 32.9% in the third quarter of 2012, compared with 30.6% for 2011. FiOS continued to drive wire line revenues, which rose 46% year-over-year in consumer revenues, the highest in a decade. Consumer ARPU (average revenue per user) was up 10.3% year over year, to $103.86.

Why did the FiOS network propel sales growth?

FiOS TV provides customers with multi-screen access to a number of networks that feature everything from sports and news to movies and children programming. Customers have anytime, anywhere access to the networks of their choice, giving them a truly borderless lifestyle. The network means they never have to miss their favorite programming anymore.

To enhance the FiOS service, Verizon launched several networks, including the deployment of next-generation routing equipment to meet growth demands and improve scalability. The company also launched a long-term core network architecture project for a label switching backbone platform supporting current and future service demands. Verizon continued building its network of the future by deploying a 100 G technology throughout the United States cloud and video distribution applications. On its long haul network, it connected major metropolitan areas with the new-generation 100 G technology

In third-quarter 2012, Verizon's total operating revenues were $29.0 billion on a consolidated basis, an increase of 3.9% compared with third-quarter 2011. ARPU for FiOS customers was more than $150. FiOS services produced 66% of consumer wire line revenues in third-quarter 2012. About two-thirds of FiOS consumer customers purchased a "triple play" of phone, internet, and video services.

Verizon reported 56 cents in diluted earnings per share, compared with 49 cents per share same period in 2011, a 14.3% increase. Verizon added 136,000 net new FiOS Internet connections and 119,000 net new FiOS Video connections in third-quarter 2012.

"Based on the strength of our FiOS fiber-optic network, we reported the highest growth in U.S. consumer wire line revenues in 10 years. We are confident that we have the right plans in place to meet these challenges while improving the long-term profitability in both Consumer and Enterprise," said Lowell McAdam, Verizon chairman and CEO during the conference call on the report.

The online access to NFL programming also allows users to make every touchdown for every game on Sunday during the regular season. "Watching the NFL network will ensure customers never have to miss their NFL programming again," said Terry Denson, vice president of Verizon's content strategy and acquisition division.

If we list some of Verizon's attempt to improve its FiOS network, we find there have been many. They include the deal with NFL, the deployment of next generation routing equipment, the launch of long-term core network architecture, expansion of the next-generation routing equipment, the connection to the Europe/India submarine system, and others.

If Verizon's FiOS initiative is seen against the backdrop of third quarter and year-on-year financial statements, it is clear that Verizon has been consistently improved in comparison to the previous year. And in addition to that, wire line revenues have increased, so it can be said that Verizon is operating at an optimum level.

How is Verizon performing compared to its competitors? With earnings per share (EPS) of 1.08, compared to 0.76 for AT&T (NYSE:T), -1.44 for Sprint Nextel (NYSE:S), 1.05 for CenturyLink (NYSE:CTL), and 0.37 for industry average, and a gross margin of 0.60%, compared to 0.55% for AT&T, 0.41% for Sprint, and 0.53% for Windstream (NASDAQ:WIN), Verizon is performing well comparatively. However, Verizon has the advantage of being the biggest player in this niche. Looking at the successive attempts to boost the FiOS network and the clearly improving numbers, I believe Verizon is a strong investment now.

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.