Verizon swung positive net phone additions of 167,000 in the fourth quarter 2016, but the carrier’s results fell short of Wall Street’s estimates.
Verizon’s net phone additions in the period were up from a net decrease of 36,000 in third quarter, but the carrier’s broader results proved a disappointment to investors. Postpaid net additions of 591,000 were well short of Wall Street’s consensus of 744,000, and adjusted earnings per share of 86 cents missed consensus by 3 cents. Earnings before interest, taxes, depreciation, and amortization (EBITDA) of $10.4 billion fell at the bottom of a range of Street estimates from $10.4 billion to $11.1 billion.
Despite the misses, though, Verizon CEO Lowell McAdam insisted the carrier remained well positioned for future growth.
“In the fourth quarter we expanded our customer base in highly competitive wireless and broadband markets,” McAdam said in a statement. “This capped a year in which we delivered solid results and returned value to shareholders, including $9.3 billion in dividends. We enter 2017 with confidence, based on our investments in next-generation networks and the new capabilities we have acquired. Our goal is to continue to earn our customers’ loyalty every day in a rapidly expanding mobile-first digital world.”
Metric rundown
Of the 591,000 net postpaid additions, Verizon said 552,000 were 4G LTE smartphones. Approximately 85 percent of retail postpaid device activations in the quarter were smartphones, while most other activations were tablets, Verizon CFO Matt Ellis said. The percentage of activations on device payment plans rose to 77 percent from 70 percent in the prior quarter, raising the total percentage of postpaid phone customers on a payment plan to 46 percent.
In addition to being below Street estimates, the 591,000 postpaid net add figure was down from 1.5 million in the fourth quarter 2015, while the 167,000 net phone additions were down from 449,000 the year prior. Still, Ellis noted overall traffic on Verizon’s LTE network increased by 49 percent year over year.
Full year 2016 postpaid net additions hit 2.3 million, including 1.8 million 4G smartphones and 1.4 million 4G tablets. Verizon closed the year with 114.2 million retail connections, including 108.8 million retail postpaid connections and 5.4 million retail prepaid connections.
Reported retail postpaid churn was 1.10 percent in the fourth quarter, up from the year prior thanks to increased churn in tablets. Retail postpaid phone churn, however, remained below .90 percent for the seventh consecutive quarter, Ellis observed.
Total wireless revenue for the quarter dropped 1.5 percent year over year to $23.4 billion while wireless service revenue also declined both year over year and sequentially to $16.3 billion. Full year wireless revenues of $89.2 billion marked a decrease of 2.7 percent year over year. Consolidated revenue of $32.3 billion was down 5.6 percent year over year.
Capital expenditures of $3.46 billion were up both sequentially and year over year, and totaled $11.2 billion for the full year. Ellis said in the year ahead, capex will continue to be focused on the network side of Verizon’s business as the carrier looks to roll out more LTE-Advanced features and make the network more efficient.
Other notes
Though it recently caught some flack from T-Mobile CEO John Legere over its advertisements around its new 5 GB individual plan, Ellis said Verizon was pleased with the offering and believes it suited an underserved market.
Despite pressure from three rivals offering unlimited plans, Ellis said unlimited is “not something we feel the need to do” since Verizon’s “network leadership” allows it to maintain a premium price for service. That said, Ellis noted the carrier will monitor offers in the marketplace to stay competitive.
On 5G, Ellis said Verizon will be measuring the success of its pre-commercial fixed wireless trials the same way it would any other investment: based on its revenue potential. If 5G fixed wireless proves it can provide “great return for shareholders” then the carrier will move ahead with commercial deployments, he said.
On the Yahoo front, Ellis said Verizon is still working with the company to assess the impact of its breaches, but hasn’t yet made any final decision on the matter. Yahoo on Monday reported results in which revenue fell 4 percent, an improvement from a streak of four consecutive double-digit declines.
Verizon’s Tuesday earnings release came on the heels of a report from Variety that the carrier had slashed 155 employees, mainly from its Go90 mobile video product unit. Variety’s report indicated Go90 will be revamped instead by staffers from Vessel, an Internet video startup co-founded by former Hulu CEO Jason Kilar the carrier acquired in October.
In a statement, Verizon confirmed the staff cuts, but said it wasn’t changing its focus on leveraging digital media.
