(Bloomberg) — Verizon Communications Inc. reported third-quarter revenue that exceeded analyst expectations, pressured by lackluster sales of hardware such as mobile phones.
Most read from Bloomberg
The company reported a net gain of 239,000 monthly phone subscribers, beating analysts’ expectations of 222,000. But total revenue was essentially flat from a year earlier at $33.3 billion, slightly below analyst expectations of $33.4 billion, as service revenue and other growth was offset by a decline in turnover from wireless equipment.
It was the second consecutive quarter in which lower equipment revenue overshadowed other gains. The stock fell 4.1% late Tuesday morning in New York.
“The decline in equipment sales is related to a lack of compelling new hardware features from smartphone makers, leading to a marked reduction in switching and lower churn,” Bloomberg Intelligence analysts wrote in a recent note.
Telecom executives, including Verizon Chief Executive Officer Hans Vestberg, have said they did not expect Apple Inc.’s latest iPhone, released in September, to spur a significant upgrade cycle. Apple’s iPhone 16 offers only modest hardware upgrades, and the advanced artificial intelligence technology will only be added to the device gradually through incremental software updates.
Vestberg said it’s still unclear whether the promises of AI capabilities in new iPhone models will convince people to upgrade. Historically, consumers have been persuaded to trade-in their devices through hardware redesigns or significant network evolution such as 5G.
“Is the software side going to do that?” Vestberg asked this in a video presentation to analysts on Tuesday. “It’s still too early to say. So far we haven’t seen it create the cycle.”
Customers used to upgrade every 12 months, but now they keep their phones for more than 40 months, Vestberg previously said.
As the pool of potential new wireless customers shrinks, New York-based Verizon is offering customizable mobile and broadband plans and offering benefits like savings on streaming services like Netflix and Max. The company is also expanding its fixed wireless product, which delivers high-speed internet over the air rather than through lines to the home. Vestberg said this “convergence” of plans and products has been attractive to customers and is leading to lower churn, or customers leaving for rivals.
Verizon said it added a total of 389,000 broadband subscribers in the third quarter and expanded its fixed-wireless subscriber base by 363,000 customers. That brings the total in fixed wireless networks to almost 4.2 million subscribers, reaching the company’s own target 15 months ahead of schedule. The company now expects eight to nine million fixed wireless subscribers by 2028. Verizon had a total of more than 11.9 million broadband connections at the end of the third quarter.
Its efforts in broadband, along with a similar push from industry peers, are increasingly encroaching on the space of traditional cable companies. The three major telecom providers, including T-Mobile US Inc. and AT&T Inc., are expected to report adding more than 900,000 broadband customers, including wireless home service and fiber, in the third quarter, according to Bloomberg estimates.
Fixed wireless services require much more capacity than traditional wireless, leading Verizon to purchase additional spectrum licenses. Last week, Verizon agreed to acquire some spectrum licenses from US Cellular Corp. to buy for $1 billion.
At the same time, the largest wireless company in the US has also spent a lot of money expanding the coverage of its fiber optic network. In September, Verizon agreed to pay $9.6 billion for Frontier Communications Parent Inc., which would bring 2.2 million fiber subscribers in 25 states. The deal, valued at $20 billion including Frontier’s net debt, was the largest for Verizon in more than a decade. Verizon expects more than 30 million fiber connections by 2028 through the combination with Frontier, the company said in a statement.
The third quarter also saw some unforeseen events, including major hurricanes in Florida and North Carolina, that forced Verizon to work overtime to restore its network. There were other network outages that were not caused by natural disasters. AT&T and Verizon were named as victims of a China-linked cyberattack called Salt Typhoon that may have exposed counterintelligence information, the Wall Street Journal reported. In late September, Verizon experienced a temporary network outage that disrupted service for more than 100,000 people at its peak.
Verizon is the first of the three major US telecom companies to report earnings this week. AT&T and T-Mobile reported this on Wednesday. Verizon shares are up about 16% this year, following AT&T’s nearly 30% rise and T-Mobile’s 39% rise.
Verizon reaffirmed its 2024 guidance, including adjusted earnings per share of $4.50 to $4.70. In the third quarter, adjusted earnings of $1.19 per share were slightly above the average of $1.18 per share according to analyst projections.
(Updates with opening shares and fixed target for wireless subscribers.)
