Verizon (VZ - Free Verizon Stock Report), a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 104 million, reported first-quarter earnings of $0.51 a share, in line with our $0.52 estimate. VZ's top-line comparison for the quarter was relatively flat, as we had expected, due in large part, to earlier divestitures of landline networks and shrinking wireline revenues.
As has been the case over the last couple of years, the company's wireless division was once again the primary growth driver. Indeed, during the period, Verizon Wireless (55% owned by Verizon Communications) added 906,000 wireless subscribers on contract-based plans between January and March, which works out to be more than double the year-earlier figure. Notably, VZ Wireless began selling the iPhone on February 10th (providing VZ with the most successful first-day sales in Verizon Wireless history), thereby ending AT&T's exclusive grip on the device in the United States. During the March quarter, the division activated 2.2 million iPhones, in line with our estimate of approximately 11 million iPhones sold by the end of the year.
However, this growth naturally comes at a bit of an expense, namely increased costs related to sales of heavily subsidized smartphones, such as the iPhone, which put pressure on margins. However, smartphone users typically pay additional data-related expenses. Indeed, first-quarter data revenue was up an impressive 22.3% year over year, and we look for more of the same going forward, thanks to Verizon's recent launch of its 4G LTE mobile broadband network in 38 states.
Verizon's wireline business is not quite as exciting at the moment. It continues to gain new FiOS Internet and television subscribers, with FiOS fiber-optic services to consumer retail customers generating roughly 54% of consumer wireline revenues in the March quarter, up from 45% a year earlier. However, the landline telephone division is still in the doldrums. However, in April, the company closed on the acquisition of Terremark Worldwide, Inc., a global provider of managed IT infrastructure and cloud services, which ought to accelerate Verizon's `everything-as-a-service` cloud strategy.
Finally, investors seem rather nonplused by the company's first-quarter performance, with the issue trading down about 2% after the earnings release. Moreover, at this juncture, the high-quality equity offers worthwhile appreciation potential through mid-decade, as well as a relatively attractive dividend yield, making it suitable for conservative income-seeking investors.
About The Company: Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.