Verizon Communications Inc (VZ) Com Stk USD0.10

Verizon reported fourth-quarter revenue of $35.1bn and underlying cash profit (EBITDA) of $11.7bn, both broadly flat on last year. Total wireless service revenue rose 3.2% to $19.4bn, driven by higher prices and an increased contribution from fixed wireless products.

Verizon added 449,000 net monthly bill-paying mobile phone subscribers, more than estimates of 223,800. Within that, consumer subscribers moved from a loss in the third quarter to a gain of 318,000.

Net unsecured debt, the group's headline debt measure, rose $4.2bn quarter-quarter to $126.4bn. Free cash flow for the full-year year rose $4.6bn to $18.7bn.

For 2024, wireless service revenue is expected to grow 2.0-3.5% with underlying cash profit rising 1.0-3.0%.

The shares rose 4.5% in pre-market trading.

Our view

Verizon is one of the world's largest telecommunications groups, with operations focused in the US. Fourth quarter performance surprised on the upside as price hikes fed through to better operating metrics and phone subscribers beat estimates.

Consumer is by far the larger of its two primary segments. It provides mobile and landline services directly to individuals and via wholesalers as well as selling devices like smartphones and laptops. Mobile subscriber growth has been a struggle this year, but the final quarter provided some welcome relief. The growing 5G network plus new, flexible, plans are starting to show results. Further price hikes are expected to deter some consumers early in the new year, but the group is still expecting to squeeze out some growth over 2024.

There's plenty of scope to grab market share with increased 5G adoption, through traditional mobile and fixed wireless broadband products. Verizon's putting a lot of eggs in this basket and has thrown billions at the task. We think this is the right move. But with the conclusion of the spending program upon us, and revenue growth hard to come by in recent years, the benefits need to start coming.

That's especially true as traditional landline operations are still in decline, and wireless data is a notoriously competitive market. It's hard to offer something meaningfully unique, so telecoms groups often end up competing mainly on price, which is rarely a good thing for profit margins.

Verizon's debt pile is eye-watering too. That's a result of spending listed as "wireless licences." Simply put, governments licence out chunks of the electromagnetic spectrum (think 5G) to telecoms groups to run their networks on, and they charge a pretty penny.

For now, Verizon looks in acceptable financial shape. Although debt is not great, we're not overly worried - revenue has tended to be reliable and the group's generated a bucket load of cash. The 6.8% yield is lofty but looks well covered so we don't have concerns there. But reducing debt is going to be a priority when capex reduces to more normal levels, at least in the near term.

The valuation isn't too demanding and we can certainly see how the mammoth cash flows and healthy yield are an attractive prospect. But we would urge caution, borrowings have helped boost returns for equity holders but it can be a double-edged source if profits struggle, and no returns are guaranteed.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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