Typically, telecommunications companies are boring affairs. While names like Verizon Communications (NYSE:VZ) are obviously critical to the digitalization movement, they usually don’t generate much excitement. However, with the upcoming 5G rollout, VZ stock has taken on new meaning.
Verizon’s website explains why 5G is vital for future innovations. The introduction of the first mobile phone represents 1G. Next, 2G allowed for enhanced features like text messaging and voicemails. Later, 3G facilitated mobile web browsing, while 4G delivered deep web functionality for our smartphones.
With 5G technology, this advanced infrastructure won’t merely facilitate ridiculously fast internet speeds. In addition to speed, it will encompass the implied potential of prior generations and bring them together in a practical, cohesive ecosystem. Thus, concepts such as autonomous vehicles, smart communities, and industrial Internet of Things will all be possible. That’s the real catalyst behind Verizon stock.
Just as importantly, the telecom firm isn’t just making fantastical claims. Instead, management has delivered tangible performance metrics for its stakeholders. For instance, in its third-quarter 2019 earnings report, Verizon beat consensus analysts’ estimates for both earnings per share and revenue.
EPS came in at $1.25, beating consensus by a penny. For revenues, Verizon rang up sales of $32.9 billion, exceeding the consensus target of $32.7 billion.
Better yet, Verizon added 615,000 postpaid customers, which was well above analysts’ estimates of 527,000 subscribers. With the telecom planning to roll out 5G capacities in over 17 cities by the end of this year, the quarterly beat couldn’t have come at a better time for VZ stock.
Additionally, a recent deal with Disney (NYSE:DIS) makes Verizon stock all the more compelling.
Disney Deal to Bolster Subscriptions for VZ Stock
While Verizon stock is a clear winner in terms of mobile subs, its internet service Fios is the weaker link. Suffering from the same cord-cutting phenomenon impacting traditional media players, Verizon’s TV business is a sinking ship.
Moreover, the company’s media ambitions has been taken to task. As such, a few months ago, Verizon sold off blogging site Tumblr. Given the competition from Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube, Verizon could not compete. With the sale, VZ stock has a more streamlined profile.
Nevertheless, media, particularly streaming media, cannot be ignored. After all, this segment is one of the key benefactors of 5G’s rapid-fire speed. Therefore, Verizon announced a little more than a week ago that it will offer free Disney+ for one year to new and existing wireless members. Also, the same deal applies to new home internet customers.
Although the move doesn’t bring content dollars under Verizon’s umbrella, it could be a smarter move for VZ stock. As you know, the extremely high content-related expenditures by Disney and AT&T (NYSE:T) has attracted criticism. But thanks to the Disney+ offer, Verizon sidesteps this expense and receives some of the benefits; namely, the opportunity to attract more subscribers to its Fios internet service.
The decision could turn out to be a very smart one. While streaming has converted many cord-cutters, millions are still tethered. For example, I gave my personal conversion story when I went from traditional TV to Roku’s (NASDAQ:ROKU) over-the-top solution. Immediately, I was impressed with the convenience and intuitiveness of the streaming platform.
Essentially, Verizon has the ability to make these conversions on a mass scale. And with Disney’s unparalleled content portfolio, there’s no better evangelism opportunity for Verizon stock.
A Slow and Steady Mover
In addition to the 5G rollout and the Disney+ deal, VZ stock benefits from the current geopolitical environment. Despite President Donald Trump announcing a “phase one” deal with China, many obstacles remain before a true resolution. One of those sticking points is China’s refusal to commit to buying U.S. farm goods.
Put another way, we could easily see this thawing relationship go cold again. But if that happens, I’m not sure if the markets will tolerate another round of head-fakes. Eventually, we could see a decline in your typical risk-on names, which would likely benefit Verizon stock.
As I said up top, telecom firms are usually boring. But in a downturn, boring can be good. In this case, boring gets you a 4% dividend yield and an extremely relevant growth platform. Although you’re not going to get rich with VZ stock, it probably won’t leave you hanging. With conditions as they are, I think some exposure makes good sense.
As of this writing, Josh Enomoto is long T stock.