How Verizon Fared in 1Q17
Impact of industry disruption
Verizon (VZ) disappointed in 1Q17 as it reported earnings and revenue that fell short of consensus estimates. So what went wrong for the company in the quarter and what’s in store for the future?
The downbeat results that Verizon reported in 1Q17 highlighted the impact of the disruption smaller competitors T-Mobile (TMUS) and Sprint (S) are causing in the phone carrier industry. The move by these smaller national carriers to abolish the traditional two-year upgrade plans for more flexible packages disoriented Verizon and AT&T (T), the market leaders. The return to unlimited data plans, a segment that Verizon exited in 2011, caused further disruption in the already maturing US (SPY) wireless market.
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Revenue fell 7.3%
Verizon stayed out of the unlimited data plans business because it considered it uneconomical, and its 1Q17 results suggested that is still the case. The company posted adjusted EPS (earnings per share) of $0.95, missing the consensus estimate that called for EPS of $0.96. Revenue of $29.8 billion fell 7.3% from the year-ago period and missed the consensus estimate of $30.5 billion. The above chart shows how Verizon’s revenue numbers have trended over the past five quarters.
Verizon also struggled to hold on to its most valuable customers as it shed 307,000 retail postpaid subscribers in the quarter, yet analysts were expecting it would add at least 222,000 new retail postpaid subscribers. The company gained 640,000 postpaid customers in the corresponding quarter last year.
All is not lost
While the return to the unlimited data plans business may not do much to boost Verizon’s top and bottom line metrics, it could help it draw new customers. The management implied in a statement that postpaid subscriber loss would have been higher than 307,000 had it not been for the unlimited plan that the company restored in February.
With more subscribers, Verizon could expand the market for its media services as it expands into media and advertising industries.