By Jody McCoy
Verizon was the first of the carriers to report their second quarter earnings, and we have a handful of analysts discussing the company’s performance and what to look for in the upcoming months:
Amir Rozwadowski of Barclays: Our initial take on Verizon’s 2Q results is that they seem to underscore the carrier’s strategy of focusing on subscriber retention and optimizing the margin profile of the business. Subscriber additions were broadly in line with our expectations, driven by strength in 4G smartphones and tablets. As previewed, these trends are unlikely to surprise most given the pickup in promotional activity during the quarter. Margins were also a notable area of strength for the carrier, particularly wireless service margins which were 241bps above our expectations for the quarter as EIP based plans (i.e. EDGE) continue to resonate with subscribers. Management’s expectations for FY15 capital expenditures remain consistent with expectations (the company has guided to +3% YoY growth in 2015 capex to $17.5-18.0B, compared to our estimate of $17.7B), underscoring our belief that Verizon continues to plan to lead with a network centric focus as its primary differentiator in the market. Read the four other analysts’ views here.
Jonathan Schildkraut of Evercore ISI: VZ reported 2Q results – matching our consensus EBITDA and EPS estimates, though supported by the accounting benefits associated with aggressive EIP uptake (EBITDA and EPS benefit) as well as the halt on D&A in the “held for sale” FiOS assets being sold to FTR (EPS benefit). Wireless subs growth was slightly better than expected, while FiOS growth was disappointing. Revs (and wireless service revs, in particular) came in below expectations – as the aggressive EIP promotion and customer retention efforts led to pressure on service revs growth (but helped on wireless churn). Management similarly reduced revs growth expectation for FY15 to 3%+ (excluding AOL) from 4%+. Net/net, VZ’s quarter and updated outlook reflect the on-going transition – and, while we don’t see meaningful downside from current levels, we also don’t see a compelling call to action this morning.
Jonathan Chaplin of New Street Research: Postpaid customer adds, EBITDA and EPS all beat expectations. Lower churn drove the beat on all three metrics. Discounting clearly played a role in lowering churn; ARPU and service revenue both missed. Verizon still has a long way to go with re-pricing the base; only 16% of subs are on EIP plans. Management lowered revenue guidance and maintained capex. We have been cautious on U.S. Carriers based on our view that increasing competition would drive down pricing, margins and returns.
John Hodulik of UBS: 2Q EPS of $1.04 beat our estimate of $1.01, on 1% higher EBITDA and rest on below the line items. Consolidated rev grew 2.4% yoy (UBSe 3.5%), down from 3.8% in 1Q15, driven by lower wireless revenue growth. Mgmt. reduced revenue growth outlook to at least 3% from prior 4%+ target. Adj. EBITDA grew 5.9% yoy, in line with 1Q, equating to margins of 36.6% (UBSe 35.8%), up 120 bps yoy.
Jennifer Fritzsche of Wells Fargo: Our Q2 wireless revenue, Adjusted EBITDA and total EBITDA margin estimates are $22.9B, $9.7B and 42.3% vs. Street of $22.7B, $9.6 and 42.3%. We expect postpaid net adds of 1.06MM vs. Street of 1.03MM, consisting of 850K tablet adds and 159K handset adds. We project postpaid churn of 0.98% vs. Street of 1.00%, up from 0.94% y/y but down from 1.03% sequentially, and an Edge take rate of 50%. We believe the quarter will be similar to Q2 2014, with VZ posting sequential improvements in postpaid net adds (+497K), wireless revenues (+2.6%) and churn (-5 bps), while wireless EBITDA margins will be 2.5% lower due to elevated promotional activity. Unlike Q1, we expect Q2 postpaid handset adds to be positive – with the amount of new 4G smartphones offsetting the continued loss in basic phones.
Reader Interactions