Recurring revenue streams of Verizon’s wireless segment
In the previous part of this series, we learned that Verizon’s (VZ) retail postpaid connections grew by ~6% year-over-year in 4Q14. Verizon segregates these connections by user accounts. Connections per user increased ~4% year-over-year in 4Q14. In 4Q13, each account had average ~2.8 connections, while the figure stood at ~2.9 in 4Q14.
Here, we’ll look at the company’s ARPA, or average revenue per account, as well as its Edge installment billings during the quarter. ARPA shows the carrier’s monthly service revenues per account. Service revenues are stable revenue streams for telecommunication companies such as Verizon, AT&T (T), Sprint (S), and T-Mobile (TMUS). Edge installment billings are also recurring revenues for Verizon. However, they contribute to the company’s equipment revenues.
Edge installment billings support unit-recurring revenues for Verizon
Verizon’s ARPA increased marginally by ~1%, year-over-year in 4Q14. However, the growth in ARPA came from a rise in the number of connections per account. Verizon’s estimated ARPU, or per-user service revenue, declined ~3% year-over-year in 4Q14.
On the positive side, Verizon’s postpaid ARPA with Edge installment billings grew ~4% year-over-year during the quarter. Also, the growth in estimated ARPU plus Edge billings was almost flat year-over-year during the quarter. The increase in Edge installment billings compensated for the year-over-year decline in estimated ARPU during the quarter.
If you want to take on diversified exposure to Verizon, you can invest in the Technology Select Sector SPDR Fund (XLK). The ETF held ~5% in the carrier on March 19, 2015.
You can also get more diversified exposure to the company by investing in the iShares Russell 1000 Growth ETF (IWF). The ETF held ~1.8% in the telecommunication company on the same date.