posted a record second-quarter result on Tuesday and even raised its earnings forecast for the second half of 2021. The telecom giant’s share saw a gain in earnings, but it doesn’t change the fact that the stock hasn’t gone anywhere for a while. year, as some of the profits came from a division that Verizon has already sold. Expect investors to want to see more 5G momentum to help the stock outperform meaningfully.
on Wednesday morning, Verizon reported $1.40 in earnings per share, or $1.37 after adjusting for one-time costs and gains. Wall Street analysts had forecast adjusted earnings per share averaging $1.30. Verizon earned an adjusted $1.18 in the same period of 2020.
Revenue last quarter was $33.8 billion, up 11% year over year and about $1 billion higher than consensus. Verizon’s net income was $5.9 billion and adjusted earnings before interest, taxes, depreciation and amortization — or Ebitda — was $12.2 billion, which is in line with analysts’ forecasts.
Verizon outperformed its all-important subscriber front in the second quarter after lagging its competitors and losing customers in the first three months of the year. The company reported 528,000 net new wireless postpaid customers, i.e. those who receive a monthly bill, while Wall Street had forecast an average of about 360,000. For the first half of 2021, Verizon has now added 24,000 postpaid subscribers.
Churn, or the percentage of customers who cancel each month, was an ultra-low 0.83% for postpaid subscribers and 0.65% for postpaid phones. Verizon became more aggressive with promotions and customer retention offers in the second quarter, as evidenced by strong subscriber numbers. But it may also have weighed on Verizon’s average revenue per user, which was below consensus expectation in the quarter.
Verizon said Tuesday that about 20% of its wireless phone customers had upgraded to a 5G device. That’s not a bad adoption for a still relatively new service. And it’s good for Verizon’s bottom line, too: 5G network access is only available on the company’s premium unlimited plans, meaning those customers will have to buy more expensive plans.
Verizon’s prepaid additions were 18,000 in the second quarter, after a gain of 19,000 in the first.
“While results this morning were strong, they were expected to be strong as 2Q20 was the worst of the pandemic,” New Street analyst Jonathan Chaplin wrote on Wednesday. “Verizon did well in 2020 in part as switching was stifled by the pandemic, and they did well in 2Q21 as customer churn remained low. We think they tend to lose market share if the switch comes back, especially in the second half of this year.”
Nevertheless, Verizon modestly raised its full-year 2021 earnings and revenue expectations. Management expects adjusted earnings per share between $5.25 and $5.35 this year, up from $5 to $5.15 earlier. Wall Street’s consensus estimate for the year was $5.10 before the rise in guidance.
Verizon also said on Wednesday that wireless service revenue growth would be 3.5% to 4% in 2021, up from its previous expectation of 3%-plus. Management expects to spend between $19.5 billion and $21.5 billion in capital expenditures this year, including $2 billion to $3 billion to get its equipment ready for the newly acquired C-Band spectrum.
Verizon Media, which includes brands like Yahoo, AOL and TechCrunch, saw a recovery in ad revenue from the pandemic-hit period from a year ago. Revenue was $2.1 billion, up 50% from the second quarter of 2020 and 13% higher than the second quarter of 2019.
Verizon management said on Wednesday they expect to complete a pair of transactions by the end of the year: the sale of 90% of Verizon Media for $5 billion and the acquisition of TracFone for $6.3 billion for prepaid.
Management said Verizon saw a 3-cent increase in earnings per share from depreciating Verizon Media’s assets while they are held for sale. That was about half of the company’s earnings in the quarter. For the full year, the benefit should be about 6 to 8 cents, according to Verizon CFO Matt Ellis. That’s a fair share of management’s higher earnings expectations.
Verizon’s stock price has been essentially flat since the summer of 2018 — it’s traded between about $53 and $61 over the past three years, even including the Covid-19 bear market — though it’s paid out tens of billions of dollars in dividends during that time. (The stock recently returned 4.5% per annum.) It is a stable and profitable company, but the next growth phase that management expects from 5G is still in its early stages. Investors have shown they want to see the proof in Verizon’s numbers before giving the stock more credit.
Shares of Verizon were up nearly 2% in premarket trading Wednesday, to about $56.70. Up to Tuesday’s close, stocks had lost 2% after dividends in 2021, versus a 16% return for the
and 14% for the
Dow Jones industrial average.
T-Mobile USA (TMUS)
the share has increased by 7% this year and
(T) returned 2% including dividends. AT&T reports Thursday, while T-Mobile goes next week.
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