Verizon posted strong Q2 growth

Verizon posted strong Q2 growth in earnings per share and operating income, which was mainly driven by continued margin expansion and healthy wireless and *FiOS revenues, the company said. Sales of tablets were better than anticipated.

* Verizon FiOS (fiber optic service) is a bundled service that includes television, telephone and internet access. The whole package is delivered over a fiber-optic communications network.

Below are some highlighted Q2 2014 data published by Verizon today:

  • Profit: $4.21 billion (Q2 2013 $2.21 billion),
  • Total Revenue: $31.48 billion, a 5.7% increase,
  • Wireless Revenue: $21.5 billion, a 7.5% rise,
  • Retail Wireless Customers: 104.6 million, 4.6% more than one year ago.

Connection speed more important than TV channels

The company’s wireline revenue grew 0.3%, the first rise since 2007, mainly because of the growth in FiOS and customers migrating from older copper lines to fiber optics. Wireline provides television, Internet and telephone services for residential and corporate customers.

The New York City-based broadband and telecommunications giant believes that the future of the wirelines business is in marketing high-speed Internet, instead of the TV service. At the end of the quarter, there were 6.3 million Internet customers versus 5.4 million with television – the gap between the two is likely to get bigger.

In 2013, Verizon carried out a survey among their younger customers where they could choose between a wider selection of TV channels or faster connections. The vast majority opted for greater speeds. The number of TV stations matters much less to younger customers today, because most of them are accessing their video preferences through the Internet, the company said.

In Q2 2014, 100,000 FiOS video customers were added, plus 139,000 net new FiOS Internet connections.

Verizon chief pleased with results

Lowell McAdam, Verizon’s Chairman and CEO, said:

“Verizon’s second-quarter results continue to demonstrate our ability to deliver strong customer growth, with equally strong financial performance, in a dynamic and competitive environment. We have great momentum heading into the second half of the year.”

“We remain focused on profitable growth and on meaningful network investments that provide our customers with the best, and with a continuously improving, overall experience.”

Earnings per share in Q2 2014 came in at $1.01, compared to 78 cents per share in Q2 2013. The latest quarter results included a net-of-tax gain of $434 million or ten cents per share related to the sale of 700 MHz A Block spectrum licenses.

Verizon Financial Q2 2014

(Data source: Verizon Communications Inc.)

Verizon tablet sales up

The company also had better-than-expected sales of tablets. The number of wireless subscribers with contracts rose by 53% to 1.4 million in Q2, which included 1.15 tablet sales, more than three times the 304,000 net postpaid phone additions.

The strong additions plus the recent purchase of Verizon Wireless resulted in an 88% increase in profit compared to Q2 2013.

At the end of February, 2014, the company completed its deal to buy Vodafone’s 45% stake in the wireless carrier for $130 billion. The purchase is forecast to dramatically increase Verizon’s profits this year.

Tablets better than phones for Verizon’s business

Even though tablets bring in less revenue that smartphones, Fran Shammo, Verizon’s financial officer, pointed out that tablet customers tend to spend much more on data packages. They are also more likely to become loyal customers.

Mr. Shammo said “Tablets are extremely good for the industry, not just for Verizon.

Verizon targeting higher spending customers

Rather than focusing on large discounts, like T-Mobile, Verizon has concentrated on keeping customers who bring in higher monthly revenue, and switching them to tablets and smartphones, i.e. products that generate greater profits.

Reuters quotes Craig Moffett, chief analyst at MoffettNathanson, who said “The risk is that the other carriers will continue to test lower and lower prices until the market finds a new equilibrium and that Verizon will be increasingly isolated at the high end of the market.”

Despite its relatively higher prices, Verizon has reduced its customer dropout rate from 1.37% last year to 1.25% in Q2 2014.