Verizon Communications Enjoys Continued Wireless Momentum in Q3

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Telecommunications giant Verizon Communications (NYSE: VZ) reported fiscal third-quarter earnings on Thursday. Big Red did a good job playing defense against aggressive competition, and continued to add wireless subscribers, although it lost Fios video subscribers on a sequential basis as the cord-cutting trend among consumers continues unabated.

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Verizon results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Total operating revenue

$31.7 billion

$30.9 billion

2.5%

Adjusted EPS

$0.98

$1.01

(2.9%)

Total retail wireless connections

115.3 million

113.7 million

1.4%

Retail churn

1.19%

1.28%

(9 basis points)

Retail postpaid average revenue per account (ARPA)

$136.31

$144.94

(6%)

Fios video subscribers

4.6 million

4.7 million

(0.5%)

What happened with Verizon this quarter?

Verizon posted strong wireless postpaid connections in the second quarter thanks to the introduction of Verizon Unlimited, and the company enjoyed continued momentum in the third quarter. Big Red posted 603,000 retail postpaid net additions, while retail churn, which measures defection to other carriers, fell.

Here are more notable events that happened in the third quarter:

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  • Oath, which includes the AOL and Yahoo! properties, generated revenue of $2 billion in the third quarter.
  • Yahoo! announced in early October that all 3 billion user accounts were impacted by its 2013 data breach, or triple the number of user accounts it initially thought were affected.
  • Verizon Wireless continues to shift away from the subsidy model, with 78% of postpaid phone users now on unsubsidized pricing plans, up from 60% a year ago.
  • Approximately 77% of phone activations during the quarter included a device payment plan.
  • Total Fios revenue grew 4.8% to $2.9 billion.
  • Verizon added a net of 66,000 Fios internet connections but lost a net of 18,000 Fios video connections, as consumer preferences continue shifting toward over-the-top (OTT) streaming services.
  • Capital expenditures totaled $2.7 billion.

What management had to say

"Verizon Wireless delivered another quarter of profitable growth combined with strong customer loyalty," CEO Lowell McAdam said in a statement. "This success is based on the strength of the Verizon network, and I share the pride of all Verizon employees that our network aided and served first-responders and customers when they needed it most following the recent natural disasters. While steadily investing to advance our network leadership and to build the Verizon Intelligent Edge Network, we have also maintained the financial flexibility to increase shareholder dividends for an 11th consecutive year." 

Despite its growing media-related businesses, Verizon confirmed that it has no intention of making a blockbuster content-related acquisition like what rival AT&T is trying to do with its proposed acquisition of Time Warner. CFO Matt Ellis told Reuters, "Just through licensing content, we can have access to content that we want to distribute to our customers." Verizon doesn't feel compelled to own the content like Ma Bell does.

Looking forward

Guidance for the balance of the year was largely unchanged, and Verizon still expects 2017 revenue to be "fairly consistent with 2016, with improvement in wireless service revenue and equipment revenue trends." Adjusted EPS trends should also be comparable to revenue trends. The company now expects that 2017 capital spending will come in at the low end of the previously provided outlook of $16.8 billion to $17.5 billion.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.