Verizon Communications Inc.’s fourth-quarter results aren’t a big mystery, but the company’s path forward comes with plenty of question marks.
Chief Executive Hans Vestberg already disclosed that Verizon VZ,
Verizon will detail just how many subscribers it gained when it reports fourth-quarter results Tuesday morning, but even more important will be the company’s outlook for the year ahead — and potentially beyond.
The company’s current predicament isn’t necessarily of its own making, suggests Deutsche Bank analyst Bryan Kraft. But that doesn’t mean that there are any easy answers for Verizon. As the largest player in the U.S. postpaid wireless market, Verizon is vulnerable to subscriber defections. Plus, its established peers have been improving their own offerings, while the cable companies represent upstart competition.
“Verizon management hasn’t been any less effective in managing the business, in our view; they’ve continued to operate at a high level, but the competition has improved its operating performance, eroding what had been a sizable operating advantage for Verizon in what was essentially a three-player market,” Kraft wrote in a note to clients. Cable players Comcast Corp. CMCSA,
What does this backdrop mean for the 2023 outlook? “We are expecting Verizon’s 2023 guidance to be impacted by the same competitive and macro pressures that led to management lowering 2022 guidance in July,” Kraft continued. At the same time, “the aforementioned pressures appear to already be reflected in consensus estimates.”
The company must figure out how to balance the various factors that affect subscriber performance. Promotions and price cuts can help attract new customers to a given network and keep new ones on board, but they come at the expense of margins. On the flip side, price increases offer a profit cushion but can alienate some customers.
Verizon raised prices on some plans in the middle of last year, and it’s generally been seen as a disciplined player in the industry.
“Verizon is migrating customers to premium unlimited tiers but is struggling to accelerate service revenue growth after raising prices last year but offset by some retention discounting and promotional-related amortization in service revenue,” wrote JPMorgan analyst Philip Cusick in a recent note to clients.
Additionally, Verizon introduced a new Welcome Unlimited plan last year that the company says is seeing traction, but Cusick notes that the $25-per-line monthly pricing puts pressure on average revenue per user.
He expects a “soft” annual forecast from Verizon “given headwinds to its consumer wireless business, more competition in business, and legacy wireline declines.”
Cowen & Co. analyst Gregory Williams wrote that Verizon’s full-year outlook will be the “focus” of the upcoming earnings, though he doubts the report will be a catalyst “as investors look for a turnaround in the Consumer wireless segment (currently mismatched in the marketplace).”
Verizon’s outlook for the current year is all the more interesting given that Vestberg shook up the consumer business at the end of 2022, announcing that he would take over the unit, replacing Manon Brouillette, who led the consumer group for less than a year.
“We look for additional details on the company’s strategy in Consumer and how Hans Vestberg hopes to turn the segment around,” Williams wrote.