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Earnings Results: Verizon stock dives to 11-year low after third-straight quarter of subscriber losses

An earlier version of this report incorrectly stated AT&T’s first-half subscriber gains.

Verizon Communications Inc. just posted its third straight quarter of subscriber losses in its retail postpaid phone business as the company adjusts to the new economic reality as well as evolving competitive dynamics in the wireless market.

Chief Executive Hans Vestberg had already cautioned prior to the report that Verizon
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expected to see a third-quarter “churn bubble” as a result of recent price increases, and Verizon in its Friday morning earnings release mentioned “elevated churn partially as a result of recent pricing actions.”

Shares of Verizon were off more than 6% in morning trading Friday after the third-quarter report and were trading at an 11-year low. The stock currently has a dividend yield of 7.54%, which is the highest among members of the Dow Jones Industrial Average
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“We recognize the importance of the dividend to our shareholders, and we intend to continue to put the board in a position to approve annual increases,” Chief Financial Officer Matt Ellis said on the Verizon earnings call.

The company logged a net loss of 189,000 consumer wireless retail postpaid phone subscribers during the third quarter, following losses of 507,000 such subscribers in the first half of the year. Verizon’s consumer wireless retail postpaid phone churn rate was 0.88%, up from 0.75% in the second quarter.

“This is their bread and butter business and they are running out of bread,” telecommunications analyst Roger Entner of Recon Analytics told MarketWatch ahead of the report.

He noted after seeing Verizon’s latest results that while the company chalked up the rise in churn in part to recent price increases, AT&T raised prices as well but still delivered solid subscriber gains.

Vestberg on the earnings call saw more positive signals in Verizon’s trends, including that the company has “started to gain traction with customers reacting positively to our new offerings.” For one, the company’s recently added Welcome plan “improved customers’ pricing perception and contributed to consumer phone gross adds being up year-over-year.”

Though Chief Financial Officer Matt Ellis indicated that Verizon expects to still see some “disconnect pressure” in the fourth quarter related to the price increases, he currently predicts the company will see “positive consumer phone net adds” in that period.

The company posted 8,000 overall postpaid phone net additions in the latest quarter when also factoring in business customers.

Additionally, the company saw 342,000 fixed wireless-access net additions, which it said in its release reflected “a strong demand for reliable and high-value broadband offerings.”

“Accelerating FWA net adds for [Verizon] and the likelihood for T-Mobile to follow in direction may continue to raise questions on the long-term run-rate for this competitive threat within the broadband market and implications for future cable broadband net adds,” wrote Citi Research analyst Michael Rollins, who called Verizon’s accelerating growth on the metric a “positive” within the latest report.

Verizon notched net income of $5.0 billion, or $1.17 a share, compared with $6.6 billion, or $1.55 a share, in the year-earlier quarter. On an adjusted basis, Verizon earned $1.32 a share, down from $1.42 a share a year prior but ahead of the FactSet consensus, which was for $1.29 a share.

Revenue rose to $34.2 billion from $32.9 billion a year before, while analysts had been looking for $33.8 billion.

See also: Verizon says it’s ‘very challenging being the premium brand’ but that new efforts will pay off

Verizon, like the other wireless companies, offers deals on phones in order to bring consumers over to its network, or incentivize upgrades in a competitive market, though Vestberg indicated at a September Goldman Sachs conference that the company was “not going to throw away money” on promotions. Nonetheless, the competitive landscape in the U.S. wireless industry is hurting Verizon.

“We continue to feel the pressures of higher device subsidies and promotional spending despite taking steps throughout Q3 to be disciplined,” Ellis said on the earnings call, according to a transcript provided by Sentieo.

The telecommunications company has other challenges as well, including as T-Mobile US Inc.
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boasts improved network quality. Verizon was used to having the best network, but T-Mobile’s ascent complicates Verizon’s value proposition to consumers in the view of some analysts.

Verizon’s latest results stood in contrast to the well-received numbers from AT&T Inc.
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which were released the day before. AT&T added 708,000 postpaid phone net subscribers during the third quarter, after showing 1.5 million such net additions during the first half of 2022.

Speaking with MarketWatch on Thursday, AT&T investor relations head Amir Rozwadowski discussed further investments in the network meant to attract new customers and satisfy existing ones.

“AT&T is in a better position here,” Entner said. “It’s much easier to make these investments when your customer base is growing than when your customer base is shrinking.”

He also flagged concerns about Verizon’s prepaid business, as the company added only 39,000 net subscribers for this part of the business last quarter.

“After four quarters of losing customers, they gained a pitiful amount,” while wireless retail prepaid average revenue per user fell, he said.

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