Verizon’s third quarter revenue rose 1.5% to $33.8bn. Within that, wireless service revenue was up 2.1% to $21.0bn.
Underlying cash profit (EBITDA) rose 2.4% to $12.8bn, driven by a combination of higher revenue and lower costs. Consumer post-paid phone subscribers fell by 7,000.
Free cash flow over the first nine months rose 9.0% to $15.8bn, driven by higher profits and the timing of cash flows. Net unsecured debt totalled $112.0bn, down 1.5% since the start of the year.
For 2025, wireless service revenue is still expected to grow 2.0–2.8% with underlying cash profit growth of 2.5–3.5%.
The shares rose 3.5% in pre-market trading.
Our view
Verizon’s new CEO didn’t mince his words - performance hasn’t been good enough for some time, and meaningful change is needed. His call for a bold transformation includes better marketing, cost cuts, a narrowed focus on growth areas, and exiting legacy businesses. It’s a compelling blueprint, but the proof will be in the pudding.
Consumer is by far the larger of its two primary segments. It provides mobile and landline services directly to individuals and wholesalers, as well as selling devices like smartphones and laptops. Mobile subscriber growth, or lack of, is the key concern. Higher prices are helping prop up the top-line, but intense competition means customers are switching at an increasing rate.
Recovery efforts include bundles, locked-in prices, perks, and better service via AI and 24/7 access. This all makes sense, but competition is using the same strategy, so we’ll have to see if it yields the intended results.
There's scope to grow 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. Growth in the wireless broadband space, which is much more popular in the US, is picking up nicely but it’s only a small part of the overall picture.
Wireless data is a notoriously competitive market. The same can be said of traditional broadband offerings. 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 – which have dipped over the past few years.
Verizon's debt pile is eye-watering and the chequebook’s got more work to do too, with the proposed $20bn acquisition of Frontier Communications. Integrating Frontier’s infrastructure into its own network should help accelerate its fibre buildout, but it’ll push debt above the target level so there’ll need to be extra cash thrown at debt to bring it back down.
For now, the 7.1% forward dividend yield looks well covered. The new CEO was keen to reiterate a focus on maintaining strong cash flows, and dividends are right up at the top of his priority list too – of course nothing is guaranteed.
Recent weakness means the valuation looks like it offers some upside, and strong cash flows with a healthy yield are certainly attractive. But earnings growth is expected to be hard to come by, and the new CEO has his work cut out to reignite growth in a very competitive market.
Environmental, social and governance (ESG) risk
The telecom industry is low/medium in terms of ESG risk. Data privacy and security is the most significant risk driver, not only because customers are increasingly concerned about privacy, but also because cybersecurity breaches can be costly. Product quality is another key risk, particularly given the networks they manage are considered critical infrastructure. Carbon emissions, human capital and business ethics are also risks worth monitoring.
Verizon’s overall management of material ESG issues is strong.
Verizon has officers responsible for security and privacy, and its cybersecurity centre meets international standards. Climate risks are reported, and it conducts annual impact assessments. The company offers employee development programs, including tuition assistance, and ensures equal pay for women and men.
Verizon key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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 LSEG. 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.