Overview: Third Point Partners' positions in 2Q14 (Part 6 of 8)
Third Point Partners and Verizon Communications
Dan Loeb’s Third Point Partners added new positions in Ally Financial (ALLY-B), Rackspace Hosting (RAX), IAC/InterActiveCorp (IAC), and FMC Corp. (FMC) last quarter. Notable exits included Verizon Communications (VZ), Cabot Oil & Gas (or COG), and International Paper (or IP).
Third Point sold its position in Verizon Communications (VZ) last quarter. It accounted for 2.45% of the fund’s total first quarter portfolio. The position was initiated in the first quarter when the stock was a hedge fund favorite—with Berkshire Hathaway and Paulson buying stakes.
Verizon provides voice, data, and video services and solutions on wireless and wireline networks. The networks are designed to meet customers’ demand for mobility, reliable network connectivity, security, and control. Its wireless business—operating as Verizon Wireless—provides voice and data services and equipment sales across the U.S.
Verizon’s wireline business provides consumer, business, and government customers with communications products and services. The products and services include broadband data and video services, network access, voice, and long distance. It also owns and operates one of the most expansive end-to-end global Internet protocol (or IP) networks.
Verizon Wireless reportedly eyeing satellite-TV operator Dish Network’s spectrum
The U.S cable and telecom sector is undergoing a consolidation. AT&T announced plans to buy leading U.S. satellite operator DirecTV. There’s also Comcast’s (or CMCSA) potential merger with Time Warner Cable (or TWC). According to reports, Sprint ended its merger talks with T-Mobile U.S. over concerns related to regulatory opposition. The transaction would have valued T-Mobile at $32 billion. It would have created a formidable competitor to current market leaders Verizon and AT&T Inc. (or T).
Market Realist reported that French telecom operator, Iliad bid $33 per share—or $15 billion—for a 56.6% stake in T-Mobile. Dish Network Corp. chairman Charlie Ergen also showed interest in T-Mobile after Sprint’s withdrawal.
In May, Verizon CEO Lowell McAdam ended speculation by saying that the company wasn’t interested in acquiring satellite operator Dish Network. However, recent reports noted that the number one wireless carrier has held talks to acquire satellite-TV company Dish’s spectrum—valued at ~$17 billion. Reports stated that the Federal Communications Commission (or FCC) rejected “a proposal by T-Mobile and Dish to have separate auctions for the paired and unpaired Advanced Wireless Services (or AWS)-three bands.” AT&T and Verizon will also see limits imposed on their bids for low-frequency airwaves in an auction carried out by the FCC scheduled for mid-2015.
Verizon reports robust results driven by strong wireless and FiOS
According to Verizon’s latest earnings release, it saw a sixth consecutive quarter of double-digit percentage growth in operating income and earnings per share (or EPS). In 2Q14, the company said it “delivered consolidated top-line growth, driven by strong wireless and FiOS revenues, and continued margin expansion.” Total operating revenues in 2Q14 were $31.5 billion—a 5.7% increase compared to 2Q13. It posted an adjusted EPS of $0.91 in 2Q14—a 24.7% increase compared with $0.73 per share in 2Q13.
The wireless segment reported revenues of $21.5 billion in 2Q14—up 7.5% year-over-year (or YoY). Service revenues totaled $18.1 billion—up 5.9% YoY. Retail service revenues grew 5.3% YoY to $17.3 billion. It added 1.4 million retail postpaid net connections in the second quarter. It added 304,000 postpaid phone net additions and 1.15 million postpaid tablets.
At the end of the quarter, smartphones accounted for nearly 75% of the Verizon’s retail postpaid customer phone base—up from 72% in 1Q14. Retail churn was 1.25% in the second quarter—down 12 basis points sequentially and up two basis points YoY. Verizon Wireless continued to add capacity to its 4G LTE network using the AWS spectrum. It said the additional bandwidth, called XLTE, is now available in more than 350 markets across the country.
Increase in wireline revenue
Wireline revenue was $9.8 billion in 2Q14—up 0.3% YoY. It was the first quarterly YoY increase in more than seven years. Consumer revenues were $3.9 billion—up 5.3% compared to 2Q13. FiOS revenues representrf 75% of the total. Total FiOS revenues grew 14.4% to $3.1 billion. It had totals of 6.3 million FiOS Internet and 5.4 million FiOS Video connections at the end of the second quarter. This represented YoY increases of 9.3% and 7.6%, respectively. In 2Q14, Verizon migrated an additional 70,000 customers to fiber.
For more information on Verizon, please read Must know: How 4G adoption and FiOS are driving Verizon’s growth.
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