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Verizon - mixed results as wireless subscribers unexpectedly rise

Verizon saw second-quarter revenue drop 3.5% to $32.6m. The drop was a result of lower wireless equipment revenue and postpaid phone upgrade activity...

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Verizon saw second-quarter revenue drop 3.5% to $32.6m. The drop was a result of lower wireless equipment revenue and postpaid phone upgrade activity. Total wireless service revenue rose 3.8% to $15.8bn, driven by higher prices and an increased contribution from fixed wireless products.

Mobile net subscribers rose by 8,000, surprising markets that had forecast a decline of 11,000.

Underlying cash profit (EBITDA) rose 0.8% to $12.0bn and operating income fell 4.4% to $7.2bn.

Verizon's headline debt measure, net unsecured debt, fell $3.2bn quarter-quarter to $126.6bn. Free cash flow fell $0.6bn to $5.6bn.

For 2023, wireless services revenue is expected to grow 2.5-4.5% with underlying cash profit (EBITDA) of $47.0-$48.5bn.

The shares rose 2.1% in pre-market trading.

View the latest Verizon share price and how to deal

Our view

Verizon is one of the world's largest telecommunications groups, with operations focused in the US.

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. The Business segment offers similar services to companies and government organisations.

Headlines have been dominated in recent weeks by the news Verizon and its peers may have to shed out billions to replace old lead-wrapped cables across their networks. It's hard to say how much this could end up costing, but it'll remain a cloud over the industry until someone can provide credible evidence of the financial or environmental impact.

For Verizon, it's a distraction it could do without.

The roll-out of 5G is in its infancy, which means there's scope to grab market share. 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.

However, it's no one-way ticket.

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. Net phone additions have been hard to come by this year, and Verizon's reduced the number of products to try and simplify the choice for consumers. It's doing a decent job attracting new subscribers, but retaining the current cohort is challenging.

What's more, Verizon's debt pile is eye-watering. 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.

And that's on top of the everyday maintenance of its sprawling asset base. Despite a slowdown in the spending on 5G, capital expenditure is expected to be close to $20bn this year.

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 has generated a bucket load of cash.

The valuation isn't too demanding but reflects the competitive landscape and huge costs needed to get ahead. The forward dividend yield also looks attractive, but with high demands on cash, we would urge caution and remind investors that no returns are guaranteed.

Verizon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 25th July 2023