Thursday, January 22, 2015

Verizon Predicts 2015 Results Similar to 2014: But What if Competition Gets Worse?

As has been the case for a couple of years, Verizon Communications fourth quarter 2014 financial results were robust enough to be the envy of many other tier-one service providers in the developed world. Top-line revenue growth was nearly seven percent.

Verizon also added two million net mobile accounts.

Verizon predicted continued solid growth for 2015, which many will consider even more important than fourth quarter results.

For 2015, Verizon expects consolidated revenue growth of at least four percent, profit margins (EBITDA) consistent with full-year 2014 results and strong free cash flow generation.

Mobile segment operating revenue climbed 11  percent in the fourth quarter.

Full-year total revenues to $87.6 billion, up 8.2 percent compared with full-year 2013.

Mobile segment operating income margin was 23.5 percent. Service EBITDA margin was 42 percent in the quarter. Full-year mobile segment EBITDA was 48.5 percent.

So no worries, eh? Well, that depends. How much competition Verizon faces in the U.S. mobile market is part of the uncertainty. Near term, the issue is T-Mobile US, Sprint and AT&T. But it looks as though Google will start to be a new factor in 2015.

In other words, past assumptions will have to be revised if Google gets into the mobile business in a significant way, adding even more instability in the market.

Verizon reported a loss of 54 cents per share, compared with earnings per share of $1.76 in the same quarter of 2013.

Revenue growth was strongly driven by equipment revenues, not service revenues. That is a nuanced performance, as observers had predicted that revenue would shift from recurring service revenues to device revenues as service providers shifted from a “subsidy” model to an “installment plan” model.

Recurring service revenue grew about 2.8 percent, down from the seven percent rate in the first quarter of 2014.

Also, mobile net adds were driven by tablet accounts, a trend that has been in place for more than a year. Of the two million net adds, 1.4 million were tablet accounts. So it is no surprise that average revenue per account dipped from $161.2 in the third quarter to $158.80 in the fourth quarter.

Mobile service profit margins dropped from 47 percent to 42 percent sequentially. Recurring service earnings dropped about eight percent (EBITDA).

In the fixed network segment, total revenues were $9.6 billion in fourth-quarter 2014, down 1.6 percent year over year.
Consumer revenues were $4 billion, up 4.1 percent compared with fourth-quarter 2013, with FiOS revenues representing 77 percent of the total.
If the competitive pressure accelerates, it is hard to say whether current expectations prove to be realistic.

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