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Will Verizon (VZ) Gain Postpaid Wireless Subscribers in Q4?

Zacks Equity Research

Verizon Communications Inc. VZ is scheduled to release fourth-quarter 2017 results on Jan 23, before the market opens.

Let’s take a closer look at the company’s Wireless segment and discuss its operations, revenues and operating margins, subscriber count and churn rates.

(See more in Verizon Communications Q4 Earnings: What's in Store?)

Wireless Segment Operations

The U.S. telecom behemoth offers the most efficient wireless network in the United States. It has a strong portfolio of wireless spectrums of which a little more than half is currently used to support 4G LTE networks. Moreover, plans to launch 5G wireless residential broadband services in several domestic markets and related commercial network deployments will boost the company’s wireless portfolio.

Verizon operates in a highly competitive U.S. telecom market with incumbents like AT&T Inc. T, T-Mobile US Inc. TMUS and Sprint Corp. S. Stiff competition has resulted in cut-throat pricing pressure in the wireless space.

To stay competitive and strengthen foothold in the wireless industry, Verizon has been launching customer-friendly prepaid family plans and several other unlimited data plans (coupled with attractive promotional plans, advertisements and lucrative discounts).

Verizon is systematically diversifying itself as a major player in the digital content and online advertising space. The company has formed a new division called Oath to oversee assets of Yahoo and AOL, including more than 20 brands like Yahoo News, HuffPost, Engadget, TechCrunch, Yahoo Finance, Yahoo Sports and Tumblr. Verizon included its Go90 content across some of its Oath brands.

Revenues

Improvement in revenues holds promise for Verizon in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for total wireless operating revenues for fourth-quarter 2017 is pegged at $22,997 million. The estimate stands above $21,580-million revenues reported in the previous quarter.

Verizon Communications Inc. Revenue (TTM)

 

Verizon Communications Inc. Revenue (TTM) | Verizon Communications Inc. Quote

 

Coming to the sub-categories, we notice similar upward estimations.

Service revenues estimate of $15,854 million is above $15,841 million reported in the last quarter. However, Verizon’s fourth-quarter 2016 revenues were $16,346 million.

Equipment revenues estimate of $7,166 million outpaces $4,352 million and $5,733 million in third-quarter 2017 and fourth-quarter 2016, respectively.

The consensus estimate for other revenues has been reduced to $917 million compared to $1,387 million and $1,298 million in the third-quarter 2017 and fourth-quarter 2016, respectively.

Operating Metrics

The Zacks Consensus Estimate of $6,767 million operating income in the fourth-quarter 2017 is above the company’s $6,309 million operating income reported in fourth-quarter 2016.

Segment EBITDA estimate for the to-be-reported quarter is pegged at $9,124 million compared to $9,969 million and $8,630 million in the third-quarter 2017 and fourth-quarter 2016, respectively.

Subscriber Statistics

Improvement in subscriber addition holds promise for Verizon in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for total retail subscribers totaled 115.923 million in fourth-quarter 2017. The figure marks an improvement over 115.274 million and 114.243 million retail subscribers, in third-quarter 2017 and fourth-quarter 2016, respectively.

Of the total, retail postpaid subscriber count is estimated at 110.288 million as against 109.686 million and 108.796 million subscribers, in third-quarter 2017 and fourth-quarter 2016, respectively.

Meanwhile, estimated retail prepaid user count is pegged at 5.630 million, reflecting an increase over 5.588 million and 5.447 million subscribers, in third-quarter 2017 and fourth-quarter 2016, respectively

In the to-be-reported quarter, the company projects an addition of 0.626 million postpaid customers against the addition of 0.603 million and 0.591 million postpaid customers in third-quarter 2017 and fourth-quarter 2016, respectively.

Similarly, net prepaid customer addition is estimated around 0.013 million against the addition of 0.139 million prepaid customers in the last quarter.

Postpaid Churn

Post-paid churn is one of the most important metrics in the wireless industry. It denotes the percentage of subscribers in a given time frame that cease to use the company's services for one reason or another. Post-paid subscribers are U.S. wireless telecom companies’ biggest revenue segment. They have a significant lifetime value for telecom companies. The lower the churn rate, the better the outlook is for the company.

The Zacks Consensus Estimate for retail postpaid churn rate in fourth-quarter 2017 is pegged at 0.01% compared to 0.97% and 1.10%, in third-quarter 2017 and fourth-quarter 2016 results, respectively.

The Zacks Consensus Estimate for total retail churn rate in the to-be-reported quarter is pegged at 0.01% compared to 1.19% and 1.34%, in third-quarter 2017 and fourth-quarter 2016 results, respectively.

The consensus estimates for retail postpaid ARPA (average revenue per account) in the to-be-reported quarter stands at $136 million, which is same as the company’s reported value in third-quarter 2017. In fourth-quarter 2016, the company reported $142 million retail postpaid ARPA.

Of the total activated phones, smartphones are estimated to account for 95% in fourth-quarter 2017. This is line with the company’s reported figures, sequentially as well as year-over-year.

Hence, it is used as a key indicator of wireless telecommunication companies. Investors interested in the telecommunication companies are advised to follow their respective stocks’ post-paid churns for better return.

Zacks Rank & Price Performance

Verizon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, Verizon portrays an impressive price performance. In the past six months, shares of Verizon have rallied 19.0% compared with the industry’s gain of 2.5%.

 

 

When compared with the market at large, the stock looks good as the S&P 500 index has risen 12.3%.

 

 

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