Verizon exceeds Q1 customer expectations, wireless shows signs of ‘stabilizing’

Verizon reported 260,00 retail postpaid net customer additions in the first quarter of 2018. (Verizon)

Verizon reported a somewhat mixed bag of first-quarter earnings, with several unexpected financial actions, but the carrier’s wireless results—including better-than-expected customer numbers—led some Wall Street analysts to conclude that the carrier is making progress on steadying its position in the industry.

In its subscriber metrics specifically, Verizon reported a net increase of 260,000 retail postpaid connections in the first quarter. That figure breaks down to net phone losses of 24,000 and tablet losses of 75,000, offset by 359,000 other connected devices gains, primarily wearables. Postpaid smartphone net additions for the quarter were 220,000, the carrier said.

While it’s true that Verizon lost phone customers during the quarter, that figure was decidedly better than the 289,000 customers it lost last year during the first quarter, and the 50,000 losses that the Wall Street analysts at Oppenheimer had anticipated.

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Perhaps more importantly, the carrier reported that, though its wireless service revenue declined in the period on a year-over-year basis, it remains on track to return to growth.

"We expect the momentum in the service revenue trajectory to continue, and we are on track for the growth to turn positive on a reported basis around the end of the year,” Verizon CFO Matt Ellis said during the carrier’s first-quarter earnings conference call with analysts this morning.

“From a high level, we believe results indicate the progress VZ is making in stabilizing its Wireless business (~85% of EBITDA), after a tougher path impacted by elevated subscriber and revenue loss in recent periods,” wrote the Wall Street analysts at Deutsche Bank Research in a note to investors this morning.

“Although wireless service revenue is still shrinking on an as-reported basis (down 2.4% YoY), it is flattish. In either case, the trend suggests an improvement than last quarter’s -2.9%, and the -5.1% the quarter before that,” wrote the analysts at MoffettNathanson in a report on Verizon’s first quarter results. “Still, the bigger picture here is a business that is steadily getting better.”

The gradual improvements in Verizon’s wireless operations in the first quarter—which were likely aided by the relatively quiet competitive landscape in wireless—were offset slightly by several financial actions across Verizon’s wider corporate operations: Verizon reported a pre-tax charge of about $249 million to retire debt early, and about $107 million of acquisition and integration costs related to its Oath business. The carrier also funded its pension plans via a $1 billion investment.

Nonetheless, analysts generally cheered what they said were mostly improving fundamentals in Verizon’s wireless operations.

“VZ's unlimited wireless offer and a better competitive environment, and expense reductions, drove solid results and should continue into 2018,” wrote the analysts at Oppenheimer.

Here’s a look at some of Verizon’s other quarterly metrics:

  • Cost savings: Last year, Verizon announced a goal of achieving $10 billion in cumulative cash savings from the business over the next four years. During the quarter, the operator reported scoring $200 million of savings so far, partly through technologies like automation, and said that it remains on track to reach its goal over the four-year period.
  • Financials: Verizon’s total consolidated operating revenues in the first quarter grew 6.6% year-over-year to $31.8 billion, and the carrier’s net income clocked in at $4.7 billion.
  • IoT: Verizon said it merged its Fleetmatics and Telogis businesses into its new Verizon Connect organization, which generated $234 million in revenues in the first quarter, up 13% year over year.
  • Churn: Verizon’s total retail postpaid churn was 1.04%, and its retail postpaid phone churn reached 0.80%.
  • Prepaid: Verizon reported a surprise loss of 335,000 prepaid customers, far exceeding analysts’ expectations of 17,000 prepaid customer losses. “We expect VZ is emphasizing postpaid plans over prepaid due to better long-term customer economics,” the analysts at Oppenheimer wrote.
  • Cable MVNOs: Verizon's CFO said that network usage from Comcast's Xfinity Mobile has "pretty much been as expected in terms of the volumes." He said Verizon remains pleased with its agreement to power Comcast's MVNO and Charter's forthcoming Spectrum Mobile MVNO.