Verizon Communications, (VZ - Free Verizon Stock Report) the telecommunications giant and Dow-30 component, reported 2016 fourth-quarter earnings of $0.86 a share, well below our estimate and three cents below the year-ago result, on a 5.6% revenue decline. And investors have certainly taken notice, with VZ stock down about 4% on the news.
Truth be told, this rather uninspiring performance comes as no great surprise. Indeed, in our December full-page review, we warned that the outlook for the next couple of years was nothing to write home about, due to the combined effects of the April 1st sale of the company's high-margined wireline operations in California, Florida, and Texas to Frontier Communications, the ongoing shift to wireless customers to device payment plans, and the ramping up of its new business model.
To wit, during the December period, VZ Wireless reported a 1.5% drop in fourth-quarter revenues, as more customers continued to choose unsubsidized device payment plans. The percentage of phone activations on device payment plans was about 77% in the December quarter, compared to about 70% in the September period. Management expects this percentage to more or less remain constant during the first quarter of this year. In addition, approximately 67% of postpaid phone customers are currently on an unsubscribed pricing plan, versus 60% at the end of the September interim, which has helped ease service revenue declines, with VZ Wireless slated to exit 2017 with positive comparisons in service revenues. VZ Wireless added 591,000 retail postpaid net additions during the final quarter of last year, well below our expectation, bringing Verizon's total number of retail connections to 114.2 million, a 1.9% year-over-year increase. Seemingly, VZ Wireless is feeling a bit of a pinch from a rather competitive wireless marketplace.
Separately, total revenues for the Wireline division's FiOS fiber-optic-based services were up 4.4% year over year, driven by 68,000 FiOS Internet connections and 21,000 FiOS Video connections in the final stanza of 2016.
Lastly, Verizon has been rather busy on the acquisition front of late. Management expects the purchase of Equinix to close in the second quarter of 2017, and the Yahoo acquisition, which has been cast into doubt by data breaches at the Internet company, still seems to be up in the air at the moment. In December, there were whispers on the Street that Verizon may demand better terms from Yahoo, after Yahoo disclosed that a breach in 2013 had exposed data from more than 1 billion user accounts. Yahoo said in September that another breach in 2014 had compromised the accounts of more than 500 million users. Verizon is still working with Yahoo to assess the financial impact of the breaches, with Yahoo expecting to wrap up the deal in the second quarter of this year.
All told, we have pared a nickel from our 2017 share-net estimate, which now stands at $4.00, on a modest improvement in the top line. At the moment, this high-quality stock would be a good selection for conservative portfolios, given its well above-average dividend yield, Highest (1) Safety rank, and appealing 3- to 5-year appreciation potential.
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.
