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Verizon Foresees Internet of Things’ Contribution in 2017

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Verizon’s Internet of Things

In earlier parts of this series, we learned about go90, Verizon’s (VZ) new “mobile-first” OTT (over-the-top) service. During the Goldman Sachs Communacopia Conference held September 17, 2015, Lowell McAdam, Verizon’s CEO (chief executive officer) and chairman talked about the IoT (Internet of Things), a small but growing segment with solid potential in the medium to long term. Lowell said, “This year so far the first half of the year we’ve done I think around $320 million of revenue, so on the scale of Verizon it’s not a big deal. But we are generating by far the largest amount of revenue from Internet of Things of any company in the US.”

During the event, Lowell also talked about how the IoT revenue stream may become consequential for the company, saying that he thinks “it will be a meaningful line item on the budgets and our results for investors to look at in 2017.”

As we can see in the above chart, although Verizon’s IoT and Telematics segment is growing , it’s still small in terms of revenue. At the end of 2014, Verizon’s IoT and Telematics revenue was ~$585 million, with Verizon generating consolidated revenue of ~$127 billion during that year.

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Strong growth potential

Even in the medium term, the Internet of Things has strong growth potential, especially in the United States. According to the Cisco (CSCO) VNI (Visual Networking Index) Forecast, M2M (machine-to-machine) modules, which are mobile-connected, are expected to increase annually at an average growth rate of ~45.5% in the 2014–2019 period in the world. However, this is expected to grow at a faster pace in the United States, at an average annual rate of ~65.8% in that period.

You may take on diversified exposure to Verizon by investing in the iShares US Telecommunications ETF (IYZ). The ETF held ~10.4% in the company on August 31, 2015.

Please note that the ETF also held a total of ~22.7% in AT&T (T), T-Mobile (TMUS), and Sprint (S) on the same date. These are the four largest US wireless carriers.

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