27 July 2020

Verizon Sees Strong Subscriber Growth Amid WFH Trends

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What’s happening: Shares of Verizon Communications Inc. rose on Friday after the wireless operator reported stronger-than-expected results for its second quarter.

What happened: The coronavirus-led lockdowns resulted in growing WFH (work from home) trends and all educational institutions shifting to online classes. Backed by this secular shift, Verizon’s phone and internet services were in strong demand during the latest quarter.

Although the pandemic resulted in store closures and a decline in device sales, the New York-based company managed to exceed estimates.

How were the results: The wireless operator reported growth in net profit, while deteriorating sales in the second quarter.

  • Sales declined to $30.4 billion, from $32.1 billion in the same quarter last year, although the figure beat analyst expectations of $29.9 billion.
  • Net income came in at $4.7 billon, or $1.13 per share, up from $3.9 billion, or 95 cents per share, in the year-ago quarter.
  • Adjusted earnings slipped to $1.18 per share, from $1.23 per share, but still came in better than the consensus view of $1.15.

Why it matters: Verizon said that stay-at-home orders during the pandemic resulted in a significant decline in store visits, which limited new sign-ups. At the same time, however, the company witnessed a solid pick-up in demand for its internet services, adding a substantial number of postpaid subscribers.

The company added 173,000 postpaid phone customers in the second quarter, much higher than the consensus estimate of 61,200.

With various companies cutting back on their advertising expenses, revenues from Verizon’s media unit plunged 24.5% to $1.4 billion.

Management said stores were steadily reopening with easing lockdown restrictions, and by the end of the second quarter, around 60% of company-operated stores were back in business.

Verizon guided to adjusted earnings growth in the range of -2% to 2% for fiscal 2020, while capital spending was projected between $17.5 billion and $18.5 billion.

How shares responded: Verizon’s shares rose 1.8% to close at $56.85 on Friday following the release of quarterly results. The company’s stock has gained around 5% over the past month, although it is still down 7% year-to-date.

What to watch: With stores being reopened, investors expect Verizon to note a rebound in overall sales in the near term. There are concerns, however, around growth suffering due to lockdown restrictions being re-imposed by US states that are witnessing a continued spike in covid-19 cases.

The Markets Today

     

Crude oil will be in focus today, after closing last week on a higher note.

Context: Oil futures closed higher on Friday, posting gains of over 1% during the week, as markets remained optimistic about an improvement in the global economy, brushing off tensions between Washington and Beijing.

Details: Tensions continued to escalate between the world’s biggest economies, with China demanding the US close its consulate in Chengdu, as a retaliatory move following Washington’s orders to shut its consulate in Houston.

Investors cheered positive announcement by AstraZeneca and Pfizer regarding their respective covid-19 vaccine candidates. Traders also remained optimistic about crude demand, with encouraging economic reports from Europe. The Eurozone manufacturing PMI returned to expansion zone, climbing to 51.1 in July. From a reading of 47.4 in June. The services PMI jumped to 55.1 in July, from June’s 48.3 reading.

WTI (West Texas Intermediate) crude for September delivery gained 0.5% to finish at $41.29 per barrel on the NYMEX (New York Mercantile Exchange), following a 2% decline in the previous trading session.

September Brent crude rose 0.1% to $43.34 per barrel on Friday, after declining 2.2% in the earlier session. For the week, WTI futures recorded a 1.3% gain, while Brent increased 0.5%.

In other commodities, August natural gas gained 1.3% to $1.808 per million British thermal units on Friday, ending the week higher by 5.2%.

What to watch: Traders will keep a close eye on the storms arising in the US Gulf Coast region, which may lift crude prices due to supply disruptions Texas.

Markets will also continue to monitor coronavirus cases, with total infections exceeding 16.2 million.

Other Markets: European indices were trading mixed at 8:30am GMT, with the FTSE 100 and French 40 down by 0.2% and 0.2%, respectively, while the Dax 30 index traded higher by 0.3%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s initial jobless claims and unemployed persons as well as the US durable goods orders and Dallas Fed manufacturing index.

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