Verizon Communications Inc. VZ ended 2020 on a strong note, reporting relatively solid fourth quarter results, with financial results exceeding the respective Zacks consensus estimates. This highlights a disciplined network strategy for long-term growth, along with a focused roadmap for technology leadership. Verizon expects to witness a strong 5G drive towards 2021, supported by a customer-centric business model and diligent execution of operational plans.
net income
On a GAAP basis, net income for the December quarter was $ 4,718 million or $ 1.11 per share compared to $ 5,217 million or $ 1.23 per share in the previous year’s quarter. The year-over-year decline is mainly attributable to the provision for income tax in the reported quarter compared to the income tax benefit in the previous year. Excluding non-recurring items, non-GAAP net income for the reported quarter was $ 1.21 per share and exceeded the Zacks consensus estimate by 5 cents. For the year 2020, the company reported net income (GAAP) of $ 18,348 million or $ 4.30 per share compared to $ 19,788 million or $ 4.65 per share in 2019 due to the headwinds of COVID-19.
Price, consensus and EPS surprise from Verizon Communications Inc.
Verizon Communications Inc. price-consensus-eps-surprise-chart | Verizon Communications Inc. quote
Revenue
Quarterly aggregate operating revenues remained almost stable year after year at $ 34,692 million, as total wireless revenue growth and Verizon Media’s solid performance were offset by lower wireless equipment revenues and declines in legacy fixed network products. Revenue surpassed the consensus estimate of $ 34,444 million. For the year 2020, total operating revenue decreased to $ 128,292 million from $ 131,868 million in 2019.
Segment results
Consumer: Total revenue fell 1.2% year on year, to $ 23,919 million, due to the significant drop in wireless equipment revenues due to low activation levels. Service revenue remained flat at $ 16,388 million, while wireless equipment revenue fell 3.8% to $ 5,503 million due to lower customer activity. Other revenues totaled US $ 2,028 million, down 5.4% year on year.
During the quarter, Verizon recorded 357,000 postpaid net adds in wireless retail. This comprised 163,000 net phone additions and 81,000 net tablet losses, offset by 275,000 other net additions of connected devices. Net additions of postpaid smartphones were 284,000, driven by the launch of new models and the gradual reopening of all retail stores operated by the company with all safety precautions. Total post-paid retail churn was 0.96%, while post-paid retail churn was 0.76%. The company recorded 92,000 net additions to Internet Yarns with an increasing tendency to work at home.
The segment’s operating revenue improved 2.7%, to US $ 7,073 million, with an operating margin of 29.6%, compared to 28.4% in the same quarter of the previous year. The segment’s EBITDA increased 2.9% to $ 9,937 million, reflecting a 41.5% margin compared to 39.9% in the previous year’s quarter.
The business: Segment revenue was flat at $ 8,050 million, as Verizon effectively responded to the challenges of COVID-19, addressing the growing traffic needs while meeting an increase in demand for connectivity and devices . The company recorded 346,000 postpaid net adds in wireless retail in the quarter. This comprised 116,000 net phone additions, 116,000 tablet net additions and 114,000 other connected device additions.
The operating income of the segment was US $ 950 million, compared to US $ 666 million in the same quarter of the previous year, for the respective margins of 11.8% and 8.3%. The segment’s EBITDA increased 18.4%, to US $ 1,981 million, with a margin of 24.6% compared to 20.7% in the same quarter of the previous year.
Verizon Media’s revenues increased 11.4% to $ 2.3 billion driven by strong advertising trends.
Other details
Total operating expenses decreased 2.2% year on year to $ 27,512 million, while operating income increased 8.1% year on year to $ 7,180 million. Adjusted EBITDA was $ 11,724 million, with a respective margin of 33.8%.
Cash flow and liquidity
For 2020, Verizon generated $ 41,768 million net cash from operating activities compared to $ 35,746 million in 2019, driven by strength in the business structure and less need for working capital due to lower wireless volume. Free cash flow (non-GAAP) was $ 23.6 billion, an increase of 32.4% year on year. As of December 31, 2020, the company had $ 22,171 million in cash and cash equivalents with $ 123,173 million in long-term debt compared to the respective counts of $ 2,594 million and $ 100,712 million in the prior year period.
Guidance
Verizon offered an optimistic orientation for 2021 based on resilient earnings performance and projected trends. The company currently expects adjusted earnings in the range of $ 5.00 to $ 5.15 per share. While service and other revenues are likely to grow by more than 2%, wireless service revenues are expected to grow by more than 3%. Capital expenditures are likely to be between $ 17.5 and $ 18.5 billion.
Zacks Rank & Stocks to consider
Verizon currently carries a Zacks Rank # 3 (Hold). Some highly rated stocks in the broader industry are Gogo Inc. GOGO, Qualcomm Incorporated QCOM and Sonim Technologies, Inc. SONM, each carrying a Zacks Rank # 2 (Buy). You can see today’s complete list of Zacks # 1 Rank (buy strong) shares here.
Gogo has a profit surprise behind four quarters of 23.9% on average.
Qualcomm expects long-term earnings growth to be 19.6%. It delivered a positive earnings surprise of 17.3%, on average, over the past four quarters.
Sonim has a profit surprise behind four quarters of 2.2% on average.
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