Verizon posts a great quarter

Wall Street can certainly 'hear' the company now.

By Jonathan Berr Apr 19, 2012 11:30AM
Image: Global communication (© Maciej Frolow/Brand X/Getty Images)Shares of Verizon Communications (VZ) were up more than 2% Thursday after the telecom giant posted better-than-expected results, fueled by gains in smartphone subscriptions and customer additions for its FiOS service. 

Net income soared 19.7% to $3.91 billion, or 59 cents a share, compared with $3.26 billion, or 51 cents a share, a year earlier. Revenue rose 4.6% to $28.2 billion. The results beat Wall Street forecasts of 58 cents a share on revenue of $28.17 billion.

During the quarter, Verizon Wireless added 501,000 contract customers, beating the 497,285 average estimate of analysts surveyed by Bloomberg News. Verizon co-owns its wireless business with Vodafone (VOD) and probably benefited from slowing sales of the Apple (AAPL) iPhone as it was able to sell rival smartphones that it doesn't need to subsidize as heavily. Nonetheless, it sold 3.2 million iPhones in the quarter.

"What is supposed to be strong (wireless and FiOS) is strong," said telecom analyst Jeff Kagan. "What is supposed to be weak (wireline) is weak. . . . Generally speaking, the company is much stronger than I expected it to be and a lot of other people expected it to be. The only other question is what is happening next."
 
Average monthly revenue for wireless contract customers increased 3.6% to $55.43, which was better than expected, while data service revenue grew 16% to $23.80. FiOS also had a strong quarter, adding 93,000 net new FiOS Internet connections and 180,000 net new FiOS video connections. Broadband connections rose 3.3% to 8.8 million and churn fell to 1.24%.

Consumer sentiment remains strong and recently hit its highest level in four years, which for wireless companies means that people will be more apt to upgrade their existing service and buy new smartphones. That bodes well for rival AT&T (T), which reports April 24, and Sprint Nextel (S), which reports a day later.  

As the U.S. wireless market becomes more saturated, the companies will be forced to compete more heavily on price. That's good news for consumers and bad news for shareholders.

Jonathan Berr does not own any shares of the companies listed here.


 
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