(Bloomberg) -- Verizon Communications Inc. reported third-quarter revenue that missed analysts’ expectations, weighed down by lackluster sales of hardware such as mobile phones.
The company reported a net gain of 239,000 monthly phone subscribers, beating analysts’ projections of 222,000. But total revenue was essentially flat from a year earlier at $33.3 billion, slightly under analysts’ expectations of $33.4 billion, as service revenue and other growth was offset by declines in wireless equipment revenue.
It was the second consecutive quarter that lower equipment revenue overshadowed other gains. The stock slid 4.1% Tuesday late-morning in New York.
“The downturn in equipment sales is tied to a lack of compelling new hardware features from the smartphone makers, leading to a marked reduction in switching and lower churn,” Bloomberg Intelligence analysts wrote in a recent note.
Telecom executives, including Verizon Chief Executive Officer Hans Vestberg, have said they didn’t expect Apple Inc.’s latest iPhone, which came out in September, to spur a significant upgrade cycle. Apple’s iPhone 16 offers only modest hardware upgrades, and its advanced artificial intelligence technology will only be gradually added to the device via incremental software updates.
Vestberg said it’s still unclear whether the promises of AI capabilities in new iPhone models will convince people to upgrade. Historically, consumers have been persuaded to trade in their devices by hardware redesigns or a significant network evolution such as 5G.
“Is the software side going to do that?” Vestberg asked on a video presentation to analysts on Tuesday. “It’s too early for us to say. So far we haven’t seen that it is creating the cycle.”
Customers used to upgrade every 12 months but now they are keeping their phones for more than 40 months, Vestberg had said previously.
As the pool of potential new wireless customers tightens, New York-based Verizon has been offering customizable mobile and broadband plans and throwing in perks such as savings on streaming services like Netflix and Max. The company is also pushing its fixed wireless product, which delivers high-speed internet over the airwaves rather than through lines into the home. Vestberg said this “convergence” of plans and products has been attractive to customers and leads to lower churn, or customers leaving for rivals.
Verizon said it added 389,000 total broadband subscribers in the third quarter and increased its fixed-wireless subscriber base by 363,000 customers. That brings its total in fixed wireless to nearly 4.2 million subscribers, hitting the company’s own target 15 months ahead of schedule. The company is now expecting eight million to nine million fixed wireless subscribers by 2028. Verizon had more than 11.9 million total broadband connections at the end of the third quarter.
Its broadband efforts, along with a similar push by peers, are increasingly encroaching on the space of traditional cable companies. The big three telecom providers, including T-Mobile US Inc. and AT&T Inc., are expected to report they added more than 900,000 broadband customers in the third quarter, including wireless home service and fiber, according to estimates compiled by Bloomberg.
Fixed-wireless service requires much more capacity than traditional wireless use, leading Verizon to snap up extra spectrum licenses. Last week, Verizon agreed to buy some of US Cellular Corp.’s spectrum licenses for $1 billion.
At the same time, the biggest wireless company in the US has also been spending heavily on expanding its fiber-optic network coverage. In September, Verizon agreed to pay $9.6 billion for Frontier Communications Parent Inc., adding 2.2 million fiber subscribers across 25 states. The deal, valued at $20 billion, including Frontier’s net debt, was the biggest for Verizon in more than a decade. Verizon is expecting more than 30 million fiber passings by 2028 from its combination with Frontier, the company said in a statement.
The third quarter also saw some unforeseen events, including major hurricanes in Florida and North Carolina that had Verizon working overtime to restore its network. There were other network interruptions that weren’t caused by natural disasters. AT&T and Verizon were named as victims of a China-linked cyberattack dubbed Salt Typhoon, which potentially exposed counterintelligence information, the Wall Street Journal reported. In late September, Verizon faced a temporary network outage that disrupted service for more than 100,000 people at its peak.
Verizon is the first of the big three US telecom companies to report earnings this week. AT&T and T-Mobile report on Wednesday. Verizon’s shares have gained about 16% this year, trailing the nearly 30% jump by AT&T and 39% increase of T-Mobile.
Verizon reaffirmed its guidance for 2024, including adjusted EPS of $4.50 to $4.70. In the third quarter, adjusted earnings, at $1.19 a share, were slightly ahead of the $1.18 per share average of analysts’ projections.
(Updates with opening shares and fixed wireless subscriber goal.)
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