No word on Yahoo from Verizon, one of the strong contenders to buy the troubled Internet giant, but today the carrier (which now owns TechCrunch) reported its own mixed earnings for Q1. Dragged by declines in wireless revenues, the company posted total revenues of $32.2 billion and earnings per share of $1.06. While both were up compared to a year ago, the sales total fell short of analysts’ expectations of $32.5 billion, while the EPS matched their estimates.
In the wake of the earnings, Verizon’s share price was down by as much as 2.36% in pre-market trading. Closing price yesterday (and current price) is $51.74/share.
Notable points:
The Aol effect. Last year: Verizon last year made a big move to acquire Aol for $4.4 billion to boost its advertising and over-the-top media business, and today some of that seems to be coming good: Verizon said that without the inclusion of Aol’s business, its revenues would have actually declined by 1.5%, instead of increasing 0.6%. It noted that Aol had its highest Q1 sales in five years.
Subsidies bite. That being said, Verizon Wireless, the company’s mobile business, continues to be the way bigger driver of business at the company. VZW had 112.6 million retail connections as of this quarter, up 3.7% year-over-year, and 107.2 million retail postpaid connections, up 4.4% year-over-year. But revenues were only $22.0 billion, down 1.5% versus a year ago, “as more customers continued to choose unsubsidized device payment plans.”
Recall that last year Verizon said it would stop offering plans in which it subsidized the cost of the phone as part of a larger service contract. This in turn lowered the average price subscribers were paying Verizon, even if in the long term it will mean less costs for the company in the form of discounts, operational costs and marketing it was shelling out to attract users to its phone-based plans.
IoT, other new areas, remain shiny. The company predictably is spinning its earnings as a positive move in the right direction of evolution: “Verizon’s strong first-quarter results demonstrate our capacity to compete effectively, while executing on our plan of continued network leadership and seeding new growth markets in mobile video and the Internet of Things,” said Chairman and CEO Lowell McAdam in a statement.
The company also reported 640,000 wireless postpaid net adds, while its fast Internet and TV service, Fios, added 98,000 for Internet and 36,000 for video services.
Aside from what may happen with Yahoo, the company continues to invest in new-wave revenues. On top of the Aol purchase last year, earlier this week, Verizon announced that it would team with Hearst to acquire Complex Media, reportedly for between $250 million and $300 million. Each now owns 50% of the company, which will operate independently.
Guidance. Verizon said it expects full-year 2016 adjusted earnings to be “at a level comparable to the company’s strong full-year 2015 adjusted earnings,” which is a nice way of saying that earnings may be flat. In September last year, the company predicted that 2016 earnings might “plateau” but didn’t give specific numbers.
It also threw in a small caveat: it noted that its current negotiations with workers, who are currently on strike, could result in “pressure on second-quarter earnings due to the timing of cost reductions.”
We’ll be listening to the call later to hear if there is any mention of Yahoo or other interesting points.