Verizon reports drop in wireless revenue, earnings

Verizon stock in Evanston
Verizon stock in Evanston(Yingcong(June) Fu/MEDILL)

By Yingcong(June) Fu

Shares of Verizon Communications Inc. fell more than 4 percent on Tuesday after the company reported a decline in earnings and wireless revenue in the fourth quarter.

The telecommunications giant reported fourth-quarter revenue of $32.3 billion, 6 percent lower than the year-earlier period as wireless revenue fell 1.5 percent to $23.3 billion. Net income decreased 17 percent to $4.5 billion, or $1.10 per diluted share, from $5.4 billion, or $1.32 a year ago.

Verizon earnings fell in the fourth quarter (Yingcong(June) Fu/MEDILL)

Excluding certain items, earnings per share came in at 89 cents, 3 cents lower than the analysts’ consensus estimates. Verizon shares fell $2.29 on Tuesday to close at $50.12.

The company’s forecast is for revenue to be essentially flat in 2017, said Matthew Ellis, Verizon’s chief financial officer, in a conference call with analysts.

Revenue is under pressure at Verizon because its customers have been switching to lower-priced plans on devices that are not subsidized by Verizon, said David Heger, analyst at Edward Jones.

Verizon added only 591,000 wireless subscribers on subsidized plans in the fourth quarter, a 61 percent decline compared with a year ago, and considerably below the consensus estimate of 726,000 additions, David Burks, analyst at Hilliard Lyons, wrote in his report Tuesday.

“The wireless industry remains both mature and intensely competitive, with other industry players such as T-Mobile and Sprint aggressively marketing new pricing plans. As a result, Verizon’s wireless revenues remain somewhat under pressure,” Burks wrote.

With a less attractive wireless pricing plan, Verizon gained subscribers at a slower pace than its competitor, T-Mobile, whose unlimited data service plan is the most competitive in the industry, Heger said.

Verizon announced in July that it would acquire Yahoo! Inc. for $4.8 billion in a move to expand into digital media. But Yahoo said Monday it is delaying the deal until the second quarter because of issues surrounding the previously announced data breach that affected 500 million users.

“We are still working with Yahoo to assess the impact of breaches and we have not reached any final conclusions yet,” said Ellis in the conference call.

If the deal is completed, Heger expects a relatively small $3 billion contribution to Verizon’s annual revenue of about $126 billion last year. The more important motivation is strategic, to gain a greater presence in digital advertising and develop a new avenue for growth.

“They’re looking at the longer-term potential to grab some market share in that space, relative to companies like Facebook and Google,” Heger said.

For the full year, Verizon reported a 26.6 percent decline in net income to $13.13 billion, or $3.21 per diluted share, from $17.88 billion, or $4.37 per diluted share, in 2015. Revenue fell 4.3 percent to $125.98 billion from $131.62 billion.

Photo at top: Verizon store in Evanston (Yingcong(June) Fu/MEDILL)