Compared to many other telecom firms, Verizon Communications (NYSE:VZ) enjoyed a very solid 2018. Thanks to a critical PR victory in the form of the 5G rollout, Verizon stock returned nearly 11% for shareholders. Just as importantly, a downturn in the broader markets made VZ an attractive investment.
At the same time, the telecom giant wasn’t completely free from problems. The most notable fallout occurred in the company’s deeply-embattled media division. With the space for content and digital advertising becoming increasingly fierce, Verizon, like rival AT&T (NYSE:T), aggressively acquired organizations to help fill the gap.
Unfortunately, the move cost management dearly, and has represented an overhang against the VZ stock price. In 2015, Verizon purchased AOL for $4.4 billion, and the following year, agreed to buy Yahoo for $4.8 billion. However, the latter’s security breach dropped the total bill to $4.48 billion. In hindsight, the discount wasn’t nearly enough to justify the risk.
Despite high hopes, the acquisitions failed to move the needle for Verizon stock. Last month, management announced a $4.6 billion write-down for the media division, dropping the value to a shockingly low $200 million. Additionally, the company recently announced they will cut 7% of the besieged unit’s workforce.
Unsurprisingly, the VZ stock price took a sizable hit in December. Still, some optimism remains for the telecom firm to resume its prior bullish momentum. For one thing, the painful write-down became an inevitability. Simply put, Verizon could not compete with online-advertising leaders Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB).
Yet admitting the shortcoming allows management to focus where it counts: its 5G rollout. Investors already jittery with the trade war want some certainty. VZ stock provides that with a steady business and a generous dividend yield.
Q4 Earnings Might Be a Mixed Bag for Verizon Stock
This past October, Verizon became the world’s first commercial 5G network. As our own James Brumley pointed out, the victory wasn’t comprehensive. After all, VZ offered the wireless 5G broadband service to a limited market. Further, most smartphones don’t have 5G capacity so the point is somewhat moot.
But in the long run, VZ stock enjoys a significant advantage. As the first to market, management scores a PR victory. Arguably, Verizon levers the best telecom network in the nation. They’re in the best position to mold 5G development to their liking.
Most importantly, Verizon stock benefits from impressive customer reach and engagement. According to insider reports, VZ hauled in 1.2 million net wireless postpaid net additions in the fourth quarter of 2018. Plus, the company incurred a phone churn rate of only 0.82%, which indicates strong brand loyalty.
Therefore, we can reasonably expect that Verizon will at least hit its consensus target for total revenue, which stands at $34.3 billion. In Q4 2017, VZ rang up just under $34 billion.
But from a profitability perspective, Verizon stock may encounter some turbulence. As we’ve noticed from its media unit, management’s swing-happy approach hasn’t always left the yard. Another challenging division within the organization is Wireline, its voice, data and video communications segment.
More than likely, Wireline’s revenue will drag behind the year-ago quarter’s result. That said, management isn’t giving up without a fight. That may not please shareholders, who would rather Verizon concentrate on its guaranteed moneymakers. Additionally, the company has made significant investments in the unit, which will weigh on profitability for Verizon stock.
Broader Headwinds Ultimately Benefit the VZ Stock Price
Of course, not everything hinges on an earnings beat. I’ve encountered multiple situations where the print moved a company’s shares in unexpected directions. Should VZ produce a beat on sales and a miss on earnings, I expect Verizon stock to nevertheless move higher.
First, management has the relatively easy ability to refocus the narrative. They’ve already dealt with the bad news; namely, the write-down and the layoffs. With the ugliness out of the way, the leadership can discuss their pioneering efforts in 5G, and strong customer engagement.
Second, Verizon is still very much wheeling and dealing. Recently, the company entered an agreement with Apple (NASDAQ:AAPL) Music, giving them exposure to the streaming phenomenon. The key difference here is that Verizon has learned to make smarter decisions. That should give VZ stock a measure of confidence.
Finally, the jitters in the markets truly benefit Verizon stock. The first month of 2019 hasn’t even closed yet, and we’ve already suffered intense political and economic calamities. It’s not a stretch to say people are looking for reliable growth.
As a telecom investment, VZ stock isn’t going to make anyone rich. But good economy or not, Verizon’s networks and services are indispensable. Irrespective of the earnings report’s granularity, I see positive moves ahead.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.