Verizon's focus on telematics, media to pay dividends in 2018: Scotiabank

Verizon store front (Monica Alleven)
Verizon's focus on media and telematics should begin to pay significant dividends starting next year, Scotiabank said

Verizon is likely to have benefited from a relatively calm wireless market in the third quarter, according to analysts from Scotiabank Equity Research. And its burgeoning connected-car business and expansion into digital media will begin to shore up Verizon’s bottom line starting next year.

U.S. carriers have been notably passive recently despite the introduction of some compelling smartphones that would typically spark aggressive promotional campaigns, as Wave7 Research pointed out last week in a note to subscribers. And Verizon’s launch of unlimited plans earlier this year has helped the nation’s largest carrier retain subscribers, Scotiabank analysts said.

“We expect Verizon to maintain its momentum on wireless net additions as the company’s switch to unlimited plans has made their offering more comparable with that of their wireless competitors,” Scotiabank analyst Jeff Fan wrote in a note to investors this morning as the firm raised its target price for Verizon shares to $49 from $48. “Furthermore, Q3 saw less promotional activity around the iPhone 8 that initially expected, which is a positive for the industry and indicates that Verizon may be able to slow ARPA declines in the second half and into 2018. The combination of a slightly improved wireless outlook and increasing clarity on the media and telematics businesses has led to our higher target.”

Fan predicted Verizon will report 525,000 net postpaid additions in the third quarter, up from 442,000 during the same period a year ago, while ARPA (average revenue per account) declines will slow to 6%, improving on the 7% deceleration the company reported last year. Verizon expects that trend to continue, with service revenue growth picking up from an expected negative 4% in the fourth quarter to seeing positive growth by the second half of next year.

Verizon’s aggressive efforts to expand beyond its traditional wireless business will begin to play a significant role next year, Scotiabank added.

“While Verizon works to integrate Telogis and Fleetmatics, we expect the contribution from these businesses to be fairly minimal,” Fan wrote. “However in 2018, we believe they will become a positive contributor to Verizon’s EBITDA. Similarly, we believe that Yahoo will add ~$500 million of EBITDA per year going forward. For Q3, we expect ~$115 million contribution from these businesses, but as both become better integrated and more efficient, that should accelerate in 2018.”