Moderate growth is expected in wireless revenue
In the last part of the series, we learned that Wall Street expects Verizon (VZ) to add, net of lost connections, ~1 million postpaid connections in 2Q15. The telecom company’s postpaid connections grew from ~98.6 million in 2Q14 to ~102.6 million at the end of 1Q15. In Part 3 of this series, we learned that Wall Street expects a modest average of ~6.30% YoY (year-over-year) growth in Verizon’s wireless segment revenue during 2Q15. Now, we’ll see one of the reasons why. Despite a significantly larger subscriber base in 2Q15, Wall Street only expects moderate YoY growth in Verizon’s wireless revenue during the quarter.
Lower ARPU will likely dampen wireless revenue growth
Verizon’s estimated postpaid ARPU (average revenue per user) has followed a YoY falling trend since 3Q14. This fall in the unit revenue of the wireless division’s postpaid subscriber base is dampening the segment’s revenue growth. Verizon’s postpaid ARPU is expected to fall YoY even in 2Q15.
The rising adoption of Verizon’s installment plan is negatively affecting Verizon’s postpaid ARPUs. Compared to traditional subsidy plans, wireless telecom companies’ installment plans—like Verizon, AT&T (T), and Sprint (S)—contribute to lower ARPUs.
Earlier in this series, we mentioned that Verizon’s Edge adoption rate rose YoY in 1Q15. Also, Verizon’s Edge take rate is expected to grow significantly in 2Q15. This should negatively affect Verizon’s postpaid ARPU during the quarter.
Pricing competition in the saturated US wireless space should also be a reason for the falling trend in Verizon’s postpaid ARPUs—at least since 3Q14. The US wireless carriers ramped up their promotional activity in 3Q14 to benefit from the launch of Apple’s (AAPL) iPhone 6 during the quarter.
You can get exposure to Verizon while diversifying risk by investing in the iShares MSCI USA Minimum Volatility ETF (USMV) or the SPDR S&P 500 ETF (SPY). USMV held ~1.50% in the telecom company as of June 30, 2015. Verizon contributed to ~1% of SPY’s holdings on the same date.