It has been easy to forget in the shadow of the acquisition of Yahoo! Inc. (NASDAQ:YHOO) — which has become an outright debacle — but Verizon Communications Inc. (NYSE:VZ) is still operating a telecom business as well, and still has earnings to report. That’s going to happen on Thursday of this week, before the market opens.
What’s in the cards for owners of VZ stock? The company is still a cash cow to be sure, but growth has been nonexistent this year, and that headwind isn’t expected to change next year either … hence the interest in Yahoo.
Whatever’s on the horizon, three things are going push VZ stock around more than anything else.
Verizon Earnings Preview
As of the most recent look, Verizon is expected to report income of 99 cents per share on $31.1 billion in revenue. In the same quarter a year earlier, the company earned $1.04 per share of VZ stock on $33.16 billion in sales.
If those estimates are met, it would mark the second quarter in a row that per-share income as well as sales were both lower.
The weakness is ultimately the result of a saturated wireless market and an increasingly unnecessary landline market. Its television offering is also facing a headwind, in the form of traditional, coaxial-delivered cable as well as more over-the-top television options like Netflix, Inc. (NASDAQ:NFLX).
3 Things to Think About
While Verizon is a complex company and is pushed as well as pulled by a variety of factors, three things are apt to impact the value if VZ stock going forward more than any other. In no particular order…
1. The Impending Acquisition of Yahoo: It’s the 800-pound gorilla in the room, and there’s no reason to pretend like it isn’t — the deal to buy struggling internet name Yahoo is on thin ice after it was discovered Yahoo didn’t disclose a massive data breach that affected 500 million users during the bidding process.
The omission of such a detail is considered “material” enough to give Verizon the right to cancel the $4.8 billion deal altogether, and many observers feel the telecom giant should do just that. Others believe Verizon should simply leverage the gaffe to lower the price tag on the target company.
Of the two choices, the latter is the wiser way to play it. Verizon needs Yahoo as a means of adding new revenue, but more than that, Verizon has the capabilities to do with Yahoo what Yahoo couldn’t do for itself … capabilities demonstrated by its success with AOL after Verizon acquired the then-struggling web company in 2015.
2. Go90: The fact that most VZ investors — as well as consumers — have never even heard of Go90 is perhaps the biggest problem Go90 is facing.
Go90 is Verizon’s mobile video service, though there’s not much to it yet. It’s most akin to Alphabet Inc‘s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube, where video clips are usually short. It’s also free for everyone to access, whether or not they’re a Verizon customer, and so far is an ad-supported venture. It may in the future become a subscription-based product.
One unique aspect to the service is that Verizon doesn’t count downloads of Go90 video towards its wireless customers’ data caps.
Consumer interest in Go90 has been disappointing so far, and by extension, advertisers have been disappointed too. It’s a platform though, and it’s something to build on. The question is, what will Verizon build with it? Perhaps it may be able to meld it with Yahoo’s similarly disappointing video effort to come up with something compelling.
This may be one of the few likely sources of actual organic revenue growth.
3. Subscriber Growth: Last but not least, though the Yahoo deal and new ventures are headline-grabbing, current and would-be owners of VZ stock must still understand that Verizon’s bread-and-butter business is wireless telephony. It needs growth there if it’s to drive real growth in the near future.
Problem is, while Verizon has been mostly seeing positive growth of postpaid customers of late, it has been seeing less absolute growth than smaller rivals T-Mobile US Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S).
Granted, it’s much more difficult to muster growth when you’re already one of the biggest players in an industry. Verizon is unusually weak on this front though … a concern underscored by the fact that its average billings per user remain the lowest in the wireless business.
Bottom Line for VZ Stock
Verizon Communications isn’t threatened in an existential way, but it clearly has some work ahead of it — it needs a growth driver. That could be provided by improving its existing wireless business, and/or leveraging Yahoo as a new marketing tool.
Indeed, Verizon may even have a chance of making Yahoo a viable web portal again, much like it did with AOL.
The one thing owners of VZ stock may want to mull though — and this goes beyond the Verizon earnings report due Thursday morning — is the possibility that an effort to do a little of everything means it doesn’t do any of those things particularly well.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
