Verizon beats Wall Street estimates, shares hit 18-year high

(Reuters) – Verizon Communications Inc (VZ.N) reported quarterly profit and net new phone subscribers well ahead of Wall Street estimates on Tuesday, as customers took advantage of its subsidies for Apple Inc’s (AAPL.O) latest iPhones late in the quarter. The Verizon logo is seen on the side of a truck in New York City, U.S., October 13, 2016. REUTERS/Brendan McDermidThe largest U.S. wireless carrier by subscribers has been focusing on upgrading its network and winning over more customers in a saturated market as rivals AT&T Inc (T.N), Sprint Corp (S.N) and T-Mobile have been focusing on merger deals and paying down debt. Verizon shares rose 3.4 percent to $56.87, their highest in more than 18 years. The company said it added a net 295,000 phone subscribers who pay a monthly bill during the third quarter, easily beating the estimate of 161,000 provided by research firm FactSet. Wall Street analysts pay attention to customers with a recurring bill, or so-called “postpaid” customers, as they are more valuable to carriers. Verizon has been investing heavily this year in its next generation 5G network, which will become the backbone of its largest business. Meanwhile, its next-largest rival AT&T Inc (T.N) bought Time Warner for $85 billion, in a bet that it can use media content on its services to lure more customers. T-Mobile and Sprint Corp (S.N), the third and fourth-placed U.S. carriers, have agreed to merge in the hope of cutting costs and becoming more competitive. AT&T and Sprint have been focusing on paying down debt rather than winning customers by lowering prices, which meant Verizon did not face cut-throat competition in the quarter, said Craig Moffett, an analyst with MoffettNathanson. “Competitive intensity is now more moderate than at any time since 2014,” said Moffett in a research note. “With two of the Big Four all but taking a knee, Verizon – and T-Mobile – now has the freedom to grow without discounting.” OATH INTEGRATION Verizon’s media and traditional phone businesses did not fare as well. Revenue from Oath, its digital media subsidiary that owns dozens of websites including AOL and Yahoo, fell 7 percent to $1.8 billion for the third quarter. Verizon said it does not expect Oath to reach its previous goal of $10 billion in revenue by 2020, as it struggles to generate as much revenue as it hoped from mobile advertising, to make up for shrinking desktop usage of its websites. Last month, Verizon said Oath CEO Tim Armstrong would leave the company at the end of the year. “I would expect the next move will be that the business is jettisoned entirely,” said Jonathan Chaplin, an analyst with New Street Research. Verizon declined comment on any planned deals. Chief Financial Officer Matt Ellis said in an interview with Reuters that Oath’s revenue trend had not met expectations, but the company is working to integrate its advertising sales platform this quarter. “That will make it easier for publishers to do business with us,” Ellis said. Net income attributable to the company rose to $4.92 billion, or $1.19 per share, in the quarter ended Sept. 30, up from $3.62 billion, or 89 cents per share, a year earlier. Excluding some items, Verizon earned $1.22 per share, beating analysts’ average estimate of $1.19 per share, according to Refinitiv data. Verizon said it is on track to reach $10 billion in cumulative cash savings by 2021. 5G ROLLOUT Verizon launched home 5G internet service on Oct. 1 in parts of Houston, Indianapolis, Los Angeles and Sacramento. The next-generation wireless network is expected to bring faster data speeds, which Verizon hopes will help it compete with competitors like cable company Comcast Corp (CMCSA.O). It has, so far, concentrated on investing in its wireless network rather than deal-making. Its next-largest competitor AT&T Inc (T.N) bought Time Warner in an $85 billion deal that closed in June, betting it could attract more customers with media content. Verizon’s wireline business, which sells traditional phone service and its Fios video and internet products, saw revenue decline 3.7 percent from last year to $7.4 billion. It lost 63,000 Fios video subscribers during the quarter, more than the 18,000 it lost last year, as viewers continue to favor cheaper TV services delivered over the internet, over paying for pricier cable packages. It added 54,000 Fios internet customers, fewer than the 66,000 Verizon added a year earlier. Total operating revenue rose 2.8 percent to $32.61 billion during the quarter, beating analysts’ average estimate of $32.51 billion, according to Refinitiv data. Reporting by Akanksha Rana in Bengaluru and Sheila Dang in New York; Editing by Supriya Kurane and Bill Rigby
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