ii view: Verizon links up with Disney

A battle to win and retain customers now involves telecom operators offering media content. 

Third-quarter results

• Revenue up 1% to $32.89 billion
• Net income up 5.5% to $5.34 billion
• Earnings per share (EPS) up 5% to $1.25
• Dividend payment up 2% to 61.5 cents per share 

Chief executive Hans Vestberg said:

"Verizon continued its momentum in the third quarter by driving strong wireless volumes in both our Consumer and Business segments, while delivering solid financial results, highlighted by continued wireless service revenue growth, increased cash flow, and EPS growth. 

"We are focused on our 5G rollout strategy, looking to deploy next-generation networks while enhancing our industry-leading 4G LTE network. Going into the fourth quarter, we are energized by the strong performance of the business and we are confident in our strategy to drive value for our customers and growth for our shareholders." 

ii round-up:

New lower pricing plans and an extension of its 5G services helped mobile phone network operator Verizon Communications (NYSE:VZ) add 615,000 post-paid smartphone net additions in its third-quarter period, ahead of analyst estimates of around 530,000. 

The share price rose marginally in morning US stock market trading. 

Verizon, whose businesses include both wireless and fixed line networks, reported a 2.6% increase in wireless revenue to $23.6 billion, while fixed line revenue fell 3.8%. Its media division, which recently sold social media platform Tumblr, reported a 2% decline. 

Verizon recently announced that it would offer a free one-year subscription to Walt Disney's (NYSE:DIS) soon-to-be-launched Disney+ streaming service to both new and many existing customers in its battle to win and retain customers. 

Both total group revenue and earnings per share materialised at the upper end of analyst forecasts. Accompanying full-year guidance pointed to low single-digit percentage growth in adjusted EPS. 

ii view:

Competition across the telecoms sector and with its arch rival AT&T (NYSE:T) remains intense. The group's move to offer a free one-year subscription to Disney's streaming service looks to compete with AT&T's tie-up with HBO. More broadly, Verizon is focused on plans to build the group's 5G capabilities and pay down debt. 

For investors, the historic and forward dividend yield of around 4%, and covered twice by earnings, offers a key attraction. A forward price/earnings ratio (PE) sat broadly in line with the three-year average and at a significant discount to the 10-year average, points to an undemanding valuation. However, network operators have arguably become commoditised, and price is now a key consumer consideration. Tie-ups with content providers add a further cost and layer of consideration. 

Positives

• Verizon is rolling out its 5G service - now totals 15 US cities
• Pursuing a target of $10 billion in cumulative cash savings by 2021

Negatives:

• The company's net long-term debt is over $100 billion
• Huawei may be demanding that it pays licensing fees on hundreds of patents

The average rating of stock market analysts:

Strong hold