Verizon has reported first-quarter revenue of $32.9bn, down 1.9% and lower than market expectations. The decrease was mainly due to lower equipment revenue and continued declines in Business wireline services.
Total wireless service revenue rose 3.0% to $18.9bn. Growth was mainly due to a change in how specific revenue was accounted for in the period, offsetting the revenue lost from the 3G network shutdown. Total broadband net additions were 437,000 - the highest in over a decade.
Mobile net subscribers fell by 127,000. That was driven by Consumer subscriber declines that were somewhat offset by gains in Business.
Operating income fell 2.7% to $7.6bn due to lower revenue, as operating expenses were down 1.7%. Underlying cash profit (EBITDA) fell 1.1% to $11.9bn.
Free cash flow of $2.3bn was up from $1.0bn seen the prior year. Verizon's headline debt measure, net unsecured debt, rose $1.8bn quarter-quarter to $129.8bn.
For 2023, Verizon expects total wireless service revenue growth of 2.5-4.5% and underlying cash profits of between $47-$48.5bn.
The shares fell 1.5% in pre-market trading.
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Our view
Verizon is one of the world's largest telecommunications groups. Operations focus on the US, but there's a wide UK shareholder base after it bought out Vodafone from a joint venture with a shares-plus cash deal in 2014.
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.
More broadband connections, and increasing demand for smartphones, have historically provided a favourable backdrop to the group. Equipment sales act as a revenue diversifier. But subscriptions are where the real money's at - once the group's paid for its infrastructure, each new client drops straight through to profit.
The roll-out of 5G should act as a catalyst. It's 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, the benefits need to start coming.
However, it's no one-way ticket.
Traditional landline operations are 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. The bounceback in net phone additions over 2022 was short-lived. Verizon's doing a decent job attracting new subscribers, but retaining the current cohort is challenging.
What's more, Verizon's net debt jumped substantially recently. That relates to the spending listed as "wireless licences." Simply put, governments licence out chunks of the electromagnetic spectrum 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 potential to provide the infrastructure and services behind a new age of connectivity is a clear attraction. The valuation isn't too demanding but reflects the competitive landscape and huge costs needed to get ahead.
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.
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