Verizon Communications Inc. (NYSE:VZ) reported its first-quarter results on Tuesday before the bell, beating expectations and adding some momentum to the stock. VZ stock was up 3.37% in premarket trading as investors cheered the fact that the company beat earnings and revenue expectations and posted year-over-year improvements.

While those figures are certainly nothing to sneeze at, there’s still plenty hanging over the wireless provider’s head that investors should consider.

Glowing Reviews

Verizon stock was applauded after the company posted EPS of $1.17 on revenue of $31.78 billion. VZ also posted an earnings beat in the fourth quarter last year, but failed to deliver on revenue, so this quarter’s success was well-received among traders.

Another big plus was retail postpaid net additions, which came in at 260,000. That was a huge relief for investors as well because the first-quarter figures disappointed with 289,000 losses. This quarter’s postpaid gains were the result of a marked increase in wearables.

Wireless Service Revenue and Tax Implications

While the postpaid additions are encouraging, it’s important to keep an eye on service revenue, which lost 2.4%. Those losses were expected, but investors should be encouraged by the fact that the year-over-year service revenue decline in the fourth quarter was 3.5%, so this quarter was a significant improvement.

VZ stock is also expected to benefit from new tax laws, which management believes will improve cash flow by between $3.5 billion-$4 billion. The influx of cash is seen raising 2018 EPS by 55-65 cents.

Oath

Another part of Verizon’s business investors should be keeping an eye on is Oath, which includes acquisitions like Yahoo! and AOL, as well as the company’s 5G technology.

Oath represents a lot of future growth plans, including advertising aspirations. However, the segment reported revenue of just $1.9 bullion, a 13% decline from the fourth quarter. This aspect of the report is a bit of a grey area because, on one hand, this arm of VZ’s business isn’t nearly as important as wireless, but on the other it houses the company’s future aspirations. Management warned that seasonal trends would take Oath’s revenue lower this quarter, but 13% in just a few months seems quite high.

What Does It Mean?

Overall, the lift in VZ stock wasn’t undeserved. First-quarter results are solid. CEO Lowell McAdam told investors, “We began 2018 with strong momentum, and we expect it to continue throughout the year,” and the results echo that sentiment.

However, I’m not sold on McAdam’s followup comments that the company is “positioning Verizon for long-term growth” while executing on near-term strategies. The wireless industry is becoming more crowded, and companies like Verizon are struggling to compete against one another without completely sacrificing profits. Yes, VZ has been one of the better picks in the industry, but I’m not sure the bumpiness is over, yet.

A lot of VZ’s future rests on the success or failure of Oath, and right now the future of that business looks unclear. Verizon has decided to tap the potential of its massive AOL and Yahoo user base to mine data and create a targeted advertising platform that will eventually span across its massive catalog of websites and apps, as well as the streaming service it has in the pipeline. This strategy is nothing new, though, as companies like Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL) have been hugely successful in doing that for years.

However, rising anxiety among the public over privacy concerns has caused both Google and Facebook to pull back and reexamine their own services, something that VZ might have to do in the near future. Verizon recently updated its privacy policy for AOL and Yahoo to notify users that it would be scanning their emails for relevant data. Google used to carry out a similar practice before it was crucified in the media and agreed to stop. Facebook is similarly being pressured to stop scanning its messaging services and Verizon could find itself next on the list.

The Bottom Line

Things are looking rosy at Verizon right now, and its first-quarter earnings results were a definite win. However, it’s worth noting that the company operates in a risky industry where competition has been a major headwind. As far as Oath and future growth plans, things are still murky. However, if you’re okay with taking on those risks, Verizon’s results suggest that the company is firmly on solid footing.

As of this writing, Laura Hoy was long FB.