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Verizon - wireless services drive mid-single digit sales growth

Verizon reported fourth quarter revenue of $35.3bn, up 3.5% compared to last year.

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Verizon reported fourth quarter revenue of $35.3bn, up 3.5% compared to last year. For the full year, revenue was up 2.4%.

Revenue growth was driven by the larger Consumer division, Business also saw a small rise. Wireless service revenue was the standout across both segments, Consumer Wireless benefited from higher prices along with 41,000 new customers.

Verizon's operating income fell 5% to $7.2bn in the quarter, as increased costs more than offset the higher revenue.

2022 ended with free cash flow of $14.1bn, down from $19.3bn the same time last year. Verizon's headline debt measure, net unsecured debt, decreased by $1.3bn to $128.0bn over the quarter.

2023 guidance is now looking for total wireless service revenue growth of between 2.5% and 4.5% and underlying cash profits of between $47bn and $48.5bn.

Earlier this month board declared a quarterly dividend of $0.6525 per share.

The shares were unmoved 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. Operations are focused on the US, but there's a wide UK shareholder base, after it bought Vodafone out of 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 provides 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 are strong, which bodes well for the future. Servicing is where the real money's at - once the group's paid for its infrastructure each new client drops straight through to profit. Whilst service revenue was broadly flat over 2022, it saw a 3.3% uptick in the final quarter.

The hope is that strong mobile sales, up 17.5% for the year, will now translate into more service customers later.

The roll-out of 5G should act as another catalyst. Relatively speaking it's in its infancy, which means there's scope to grab market share. Verizon's putting a lot of eggs in this basket, we think this is the right move.

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. Encouragingly we have seen a strong bounceback in net phone additions over 2022. The same can be said for broadband.

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. Debt is slowly coming down, but market forecasts suggest management is prioritising dividends.

And that's on top of the everyday maintenance of its sprawling asset base. Capital expenditure was $23.1bn over the year as another few billion goes toward the 5G rollout.

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.

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
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 24th January 2023