What’s happening: Shares of Verizon Communications came under pressure on Friday even as the company reported better-than-expected earnings for the first quarter.
What happened: Verizon’s shares have held up these past months, despite the coronavirus-related broader market downturn. The stock declined, however, after the company’s earnings release on Friday. This may have been partly driven by profit taking, as traders had bought into the stock ahead of the quarterly results. However, some of the pressure was caused by concerns over the decline in Version’s subscribers in the first quarter.
Investors had been expecting an increase in subscribers for the provider of internet and mobile phone services. Despite the disappointment on that front, was the selloff in Verizon’s stock hasty?
How were the results:
Verizon’s reported profit growth for the first quarter, although its sales were marginally lower.
- Adjusted earnings climbed to $1.26 per share, from $1.20 per share from the same quarter last year. The figure exceeded the consensus estimate of $1.22 per share.
- Operating revenues slipped to $31.6 billion, from $32.1 billion in the year-ago quarter, missing expectations of $32.4 billion.
Rival AT&T had reported disappointing results for both revenues and earnings earlier in the week.
Why it matters: Verizon has been one of the beneficiaries of the pandemic, as people and business struggle to communicate in the midst of a lockdown. On the other hand, the company has had to close as many as 70% of its retail stores, resulting in a decline in device sales. With this, the New York-based company lost 68,000 phone subscribers during the quarter, with a decline in customer activity and device volumes.
Analysts pointed out that this churn rate is within the normal range that the company has recorded for the first quarter in the past few years. And, the telecoms giant is encouraging customers to buy devices online.
Meanwhile, VerizonMedia has suffered immensely due to COVID-19 with massive cutbacks in advertising rates. VerizonMedia’s revenues declined 4% to $1.7 billion in the first quarter
Verizon followed AT&T’s footsteps and withdrew its revenue guidance for the full year. The company also cut its full-year earnings forecast. Verizon now projects adjusted earnings growth between -2% and +2%, down from its earlier projection of 2% to 4% growth.
In a bid to encourage activity, Verizon is now providing additional high-speed data of 15GB, while waiving off activation and late fees. The company is also offered unlimited calling minutes to subscribers with older plans.
Verizon announced the acquisition of Zoom’s rival BlueJeans, as lockdowns have forced people to work from home during the pandemic.
At a time when most companies are scrapping their dividends, Verizon offers a healthy dividend yield of 4.2%.
How the shares have performed so far: Shares of Verizon lost 0.6% on Friday. The stock has surged 16% over the past month.
What to watch: Despite various coronavirus-related disruptions, the US-based wireless company plans to roll out its next-gen 5G wireless technology and improve its current 4G network. Investors look forward to a rise in subscriber numbers over the coming months.