Verizon rivals put squeeze on No. 1 carrier's growth
Verizon is expecting a year of flat growth, thanks in part to a competitive squeeze put on the telecom giant.
Amid an increasingly challenging wireless market, Verizon on Tuesday reported adjusted earnings of 86 cents per share, down from the 89 cents per share in the same October-December period last year. Analysts had expected 89 cents per share, according to those polled by S&P Global Market Intelligence.
Verizon remains the largest U.S. wireless provider and it added 591,000 net subscribers, bringing its total to 114.2 million, up 1.9% over 2015. But its subscriber additions fell below the 726,000 net additions expected by Wall Street analysts.
For 2017, the company expects revenue "fairly consistent" with that of 2016, which was about $126 billion, down 4.3%.
Verizon (VZ) shares were down more than 4% in trading Tuesday to $50.04. Shares are down more than 10% over the last six months.
Competitors T-Mobile and Sprint, which offer unlimited data plans, continue to make wireless gains creating "a competitive challenge" for Verizon, says Dave Heger, a senior equity research analyst with investment firm Edward Jones. T-Mobile, for instance, added about twice as many subscribers, 1.2 million, in the fourth quarter as Verizon did.
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"There's no question T-Mobile is picking up market share" in the "tough competitive environment," Heger said. "You may even have Sprint regaining some share, too, as they become more aggressive. Verizon ... tries to offset that by having the best network and hold onto customers by having the best service experience."
But Verizon faces challenges on another front with AT&T's launch of DirecTV Now — a direct result of its 2015 purchase of the satellite TV service — and its pending acquisition of content powerhouse Time Warner. Even Sprint has got into the act, acquiring one-third of music streaming service Tidal.
Verizon did acquire AOL in 2015 and is in the midst of acquiring Yahoo, and it launched its own ad-supported mobile video service go90. But it's facing some hurdles in evolving its digital media offerings.
Verizon has pushed back the closing date of its Yahoo acquisition, announced in July 2016 for $4.8 billion, to the close of the second quarter of 2017. Verizon had expected to finalize the deal during the current quarter.
The company continues to assess the impact of two massive data breaches, something that has led some Verizon executives to publicly question the cost of the deal.
"We have not reached any final conclusions yet," said Verizon Chief Finance Officer Matt Ellis during a conference call with analysts Tuesday.
And last week, Verizon laid off 155 employees working on go90 in Los Angeles, San Jose and New York. According to a report in Variety, the go90 app will be rebuilt by the employees hired as part of the company's acquisition in October 2016 of online video service Vessel.
"These changes are not indicative to a change in our strategy and we remain committed to rapidly enhancing our existing online video products and delivering new products,” Verizon said in a statement.
A good sign for Verizon: Users of go90 average daily usage of 30 minutes, with only 20% of that on the Verizon network, Ellis said. That means users on other wireless services are checking it out and many are watching via WiFi.
CFRA Research analyst Angelo Zino expects the Yahoo deal to go through, but to keep pace with AT&T "we think Verizon needs a bigger, more transformative deal. ... Verizon's competitive advantage has always been that network, but it isn’t that great, relative to competitors, as it once was."
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With the Federal Communications Commission now helmed by new merger-friendly Republican Ajit Pai, Verizon "should seize the moment ... and do something more transformative," said Zino, who maintained a hold on Verizon stock.
Verizon reported fourth-quarter net income fell 16% to $4.6 billion. However, Verizon's Q4 net income surpassed analysts' expectations of $3.7 billion.
Revenue fell 5.6% to $32.3 billion, compared to analyst expectations of $32.1 billion.
A drag on revenue growth, Heger says, is that many Verizon wireless customers are moving from service plans that include the price of the smartphone to monthly bills for connectivity only. Still, Verizon continued to maintain profitability, says Heger, who maintains a buy rating on Verizon shares because they could be undervalued.
Verizon also added 68,000 Fios Internet subscribers and 21,000 video subscribers during the period, growing its total subscriber base to 5.7 million broadband and 4.7 million video connections. Wireline revenue fell 3.1% to $7.8 billion.
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Overall, the company invested $17.1 billion during 2016, including 5G wireless tests. “We are positioning Verizon for future growth and continued sustainable shareholder value,” said Verizon Chairman and CEO Lowell McAdam in a statement.
Reuters contributed to this report.
Follow USA TODAY reporter Mike Snider on Twitter: @MikeSnider.