Verizon Communications Inc. returned to positive subscriber growth in its consumer postpaid phone business for the fourth quarter, but the company came up shy with its earnings outlook for the full year.
Its stock ended Tuesdayâs session up 2%, breaking a four-quarter streak of post-earnings declines.
The company posted 41,000 net additions for its consumer wireless retail postpaid phone business in its Tuesday morning report, snapping a streak of subscriber losses that lasted three quarters. While FactSet doesnât easily track this metric, Evercore ISI analysts were anticipating 50,000 postpaid phone net additions for the consumer business.
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met per-share earnings expectations for the most recent quarter, though Wolfe Research analyst Peter Supino wrote in a note to clients that âpromotions clearly weighed on margins.â
MoffettNathanson analyst Craig Moffett highlighted that Verizon recorded a 33.3% margin on the basis of earnings before interest, taxes, depreciation and amortization (Ebitda) for the latest quarter, down from 34.5% in the year-earlier fourth quarter.
âThe challenge for 2023, and not just for Verizon, will be to find a way out of this new, more promotional environment,â Moffett wrote. While the market âclearly demands subscriber growth, or at least subscriber stability,â one carrierâs promotions tend to prompt competitors to get more aggressive, âwhich only makes hitting subscriber targets that much harder, and that much costlier.â
Chief Executive Hans Vestberg addressed the promotional landscape on Verizonâs earnings call.
âYou can expect Verizon to compete, but I want to underline again that we will not sacrifice financials for volumes,â he said, according to a transcript provided by AlphaSense/Sentieo. âWe continue to focus on improving our cost of acquisition and retention and believe current promotional incentives are not sustainable for the industry in the long run.â
He acknowledged that Verizon has âparticipated, to some extent, in this dynamic,â but told investors to âexpect us to pursue more ways to move away from the aggressive handset subsidies.â These include the companyâs Welcome Unlimited plan that offers lower headline prices for subscribers but cuts back on device subsidies, according to Vestberg.
For the full year, executives at Verizon anticipate 2.5% to 4.5% in total wireless service revenue growth, though this projection includes about 190 basis points of expected benefits from the reallocation to wireless service revenue of some items previously classified as âotherâ revenue. They also model adjusted earnings per share of $4.55 to $4.85, whereas analysts tracked by FactSet were looking for $4.96.
Verizonâs management expects $18.25 billion to $19.25 billion in capital spending for the full year, including what the company says will be the final $1.75 billion of its incremental $10 billion of C-Band-related spending. The FactSet consensus was for $19.8 billion in capital expenditures.
âWe believe Verizonâs guidance does likely include the potential for promotional costs to stay elevated, which could give some room for Verizon to selectively get more aggressive to target certain customer verticals and try to improve overall gross add share,â Citi analyst Michael Rollins wrote in a note to clients. âHowever, we donât expect Verizon to broadly cut price and believe it could consider additional selective price actions on its back-book and fees within its wireless segment.â
The company recorded fourth-quarter net income of $6.7 billion, or $1.56 a share, compared with $4.74 billion, or $1.11 a share, in the year-prior quarter. After adjustments, Verizon earned $1.19 a share, compared with $1.31 a share a year before. The company matched the FactSet consensus, which was for $1.19 a share.
Revenue for the most recent quarter rose to $35.3 billion from $34.1 billion a year before, whereas analysts had been expecting $35.1 billion.
During the latest quarter, Verizon saw 379,000 fixed-wireless net additions. The performance there was âa bright spot for Verizon,â according to Third Bridge analyst Jamie Lumley, though he wrote that âeven after a strong quarter, it is clear that T-Mobile is still leading the pack for this offering.â
T-Mobile US Inc.
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hasnât formally reported, but the company disclosed ahead of an investor conference earlier this month that it saw 927,000 postpaid phone net additions during the fourth quarter. Verizonâs earnings report came a day ahead of earnings for AT&T Inc.
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See: AT&T could âturn the cornerâ on a key metric this year