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Verizon’s 3Q16 Earnings Exceed Expectations as Sales Disappoint

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Dec. 4 2020, Updated 10:52 a.m. ET

Verizon beat earnings estimates

On October 20, Verizon (VZ) posted EPS (earnings per share) for 3Q16 that handily beat the consensus estimate, but sales were disappointing. The carrier reported EPS of $1.01 on revenue of $30.9 billion. EPS in the corresponding quarter last year was $1.04, while revenue in the latest quarter dropped 6.7% year-over-year (or YoY). The consensus estimate called for EPS of $0.99 on revenue of $31.1 billion.

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The impact of competition

The chart above shows Verizon’s EPS trend for the last five quarters to 3Q16. Intense competition seems to be reversing Verizon’s fortunes. Smaller rivals T-Mobile (TMUS) and Sprint (S) have stepped up competition for subscribers with aggressive pricing techniques. Sprint, for instance, is promising subscribers who defect to its network that they will only have to pay half the price of the plan they have with a former provider. On top of that, Sprint is paying up to $650 in switching costs per line for defectors.

The intense competition could explain the pressure on Verizon’s top and bottom lines as highlighted in 3Q16 results.

Reviewing the Yahoo deal

Verizon told investors on the earnings call that it is reassessing the terms of the Yahoo deal. The move to review the terms of the $4.8 billion deal comes in the wake of a breach on Yahoo’s system that affected 500 million user accounts. If Verizon determines the impact of the breach is material, the carrier could press for renegotiation of the buyout term for Yahoo’s web assets.

Verizon sees the Yahoo acquisition as part of the campaign to strengthen its position in the digital media and advertising sector. Perhaps the carrier, which is now facing growing competition in its traditional wireless business, is hoping to become a significant digital advertising player along with industry giants Facebook (FB) and Alphabet (GOOGL).

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