Verizon M&A talk 'may be overblown,' analysts say

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Speculation of another Verizon tie-up has increased this week following the release of its first-quarter earnings.

Verizon’s brutal first-quarter results prompted some onlookers to speculate that the carrier is scrambling around the dance floor looking for another partner. But that may not be the case, according to analysts.

There’s no question that the nation’s largest wireless network operator stumbled out of the gate in 2017. Verizon posted a net loss of 289,000 postpaid phone customers, and it was on pace to lose nearly 400,000 customers before finally joining the unlimited-data bandwagon that it had long eschewed.

Its financial results also disappointed, prompting Craig Moffett of MoffettNathanson to claim that “Verizon missed. On almost every metric.”

Verizon shouldn’t feel pressured into a shotgun wedding with another media company or cable operator, though, Moffett said.

“Verizon has become something close to a pure-play wireless operator, and the wireless business is not a happy place. Today’s Verizon results were very poor,” Moffett wrote in a note to investors. “So it isn’t hard to imagine that the pressure on Verizon to do a deal—any deal—is very real.

“But for all that, we still can’t help but to be skeptical about all the speculation. We’ve already weighed in on the possibility of a Charter deal (we don’t think Verizon could afford it even if they wanted to). We don’t see a Comcast deal as in the cards either … They’ve said they don’t love the idea of a Disney or CBS deal, either. Oh, and we don’t think they have the balance sheet for a giant non-cash-producing spectrum deal with Dish.”

Moffett’s note threw a bit of cold water on speculation that has run rampant on potential Verizon M&A activity following comments CEO Lowell McAdam made earlier this week. McAdam made headlines when he said the company would be open to discuss merging with Disney, Comcast or CBS, although in a separate interview he downplayed the idea of a tie-up with a cable operator.

 Like its rival AT&T, Verizon has moved aggressively to expand its business beyond its core wireless services: Among other deals, it recently agreed to spend $4.48 billion to acquire Yahoo and it closed a $1.8 billion buyout of XO Communications in a deal centered on spectrum.

Such moves aren’t paying huge dividends yet, Jennifer Fritzsche noted, but Verizon may be more focused on cultivating its latest acquisitions than spending billions more to add to its empire—for now, at least.

“Verizon’s emerging business lines, including digital media and internet of things, continued solid growth, but are not yet scaled large enough to contribute meaningfully to earnings,” Fritzsche wrote as she lowered Wells Fargo’s 2017 revenue estimate for Verizon by $700 million. “We think chatter of potential M&A may be overblown, although we believe Verizon will opportunistically assess its options if the wireless business does not improve.”