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Why Verizon’s IoT Revenue Growth Has Been Lower than Expected

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Verizon’s IoT revenue

In the earlier parts of this series, we learned about some of the aspects of Verizon’s (VZ) wireline segment. During the recent Wells Fargo Technology, Media, and Telecom Conference held on November 10, 2015, Verizon’s chief financial officer Francis Shammo talked about Verizon’s small but growing IoT (Internet of Things) revenue stream.

Regarding Verizon’s IoT stream, Shammo said, “We were growing this line item about 30% to 40% last year; that slowed a little bit this year because of some of the repricing we had to do with some of our major contracts, but that line item is going to start to take off in 2016 and 2017.”

As we can see in the above chart, Verizon’s IoT revenue grew by ~45.2% year-over-year (or YoY) to reach ~$585 million in 2014. In the first nine months of 2015, Verizon’s IoT revenue was ~$495 million. In terms of sequential growth, this revenue stream rose by ~6.1% during 3Q15.

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Growth potential of IoTs in the United States

The medium-term growth of IoTs, which are mobile-connected in the United States, is expected to be robust. According to Cisco’s (CSCO) VNI (visual networking index) forecast, IoTs are expected to grow annually at an average rate of ~65.8% during the 2014–2019 period in the United States. Moreover, globally, this figure is expected to be ~45.5% during the same period.

Instead of taking direct exposure to Verizon’s stock, you may wish to take a diversified exposure to the telecommunication company by investing in the iShares US Telecommunications ETF (IYZ).

IYZ had ~10.8% of its holdings in Verizon at the end of September 2015. Note that IYZ also held a total of ~20.7% in AT&T (T), T-Mobile (TMUS), and Sprint (S) on the same date.

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