Verizon's Q3 service margin hits 50% as customers flock to Share Everything plans
Verizon Wireless (NYSE:VZ) saw its third quarter EBITDA service margin rise to a record-high of 50 percent as customers flocked to the company's new Share Everything data plans. Verizon CFO and EVP Fran Shammo told investors that adoption rates of the new plans, which were just introduced this summer, are higher than expected with more than 13 percent of Verizon's customer base on the new plans.
Click here for key slides from Verizon's third-quarter report.
Interestingly, Verizon's Share Everything plans appeared to drive more sales of LTE-equipped modems and tablets. Shammo noted that Verizon added a large volume of postpaid tablets in the quarter and that Internet devices almost doubled in net adds from the second quarter to the third quarter. Verizon's Share Everything plans allow users to share data among a variety of devices, including smartphones, tablets and modems.
In addition, Verizon Wireless added 1.8 million retail net connections in the third quarter, including 1.5 million postpaid connections. This is the highest net add number for Verizon in four years. The company now has 95.5 million total connections, including 90.4 million postpaid connections.
Verizon sold 6.4 million smartphones in the third quarter. Of those, 3.1 million were Apple (NASDAQ:AAPL) iPhones. Shammo noted that the majority of the iPhones sold in the quarter were iPhone 4 and iPhone 4S. The iPhone 5 was introduced in September, and Shammo said that there were some supply constraints surrounding the iPhone 5 that he expects may continue in the fourth quarter. Shammo estimated that Verizon only sold 651,000 iPhone 5 smartphones in the third quarter.
Here's a breakdown of the other key metrics for Verizon's quarter:
Financials: Verizon Wireless reported total revenues of $19 billion, up 7.3 percent year over year. In addition, the company's third quarter service revenue was $16.2 billion, up 7.5 percent year over year. Retail service revenues were $15.5 billion.
ARPA: Verizon noted it is no longer reporting average revenue per user (ARPU) but instead now is reporting average revenue per account (ARPA). The company is making this change now that it has introduced the Share Everything plans, which let customers add multiple devices to one account. The company reported an ARPA of $145.42 per month.
Margins: Verizon's wireless operating margin was 31.8 percent and EBITDA margin was 50 percent. Shammo noted that he expects the carrier's fourth quarter margins to decline slightly because of an increased volume of iPhone sales.
Smartphones: Verizon said it has a smartphone penetration of 53 percent, up from 50 percent at the end of second quarter. Of those, 3.4 million were Android smartphones and 3 million were LTE smartphones.
LTE devices: Verizon sold 4.5 million LTE devices in third quarter, a figure that includes smartphones and other devices. In addition, the company ended the quarter with 14.9 million postpaid LTE devices on its network. Shammo said that 51 percent of Verizon's Internet devices are LTE and 25 percent of smartphones are LTE.
Churn: Verizon's retail postpaid churn was 0.91 percent in the third quarter. Total churn was 1.18 percent.
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