Verizon Growth Tops Estimates, Adding Momentum in 5G Pursuit

(Bloomberg) -- Verizon Communications Inc. posted its sixth straight quarter of subscriber growth, a sign of much-needed momentum as the company embarks on one of the biggest network rollouts in decades.

The upbeat results helped turn the largest U.S. wireless carrier into a haven for investors fleeing a broader market rout on Tuesday. The stock rose as much as 4 percent to $57.16, while the Dow Jones Industrial Average tumbled more than 500 points. The rally brought Verizon to an 18-year high.

The growth seems to be a validation of Verizon’s steady-as-we-go strategy, which has focused on its network rather than pursuing deals like AT&T Inc.’s $85 billion acquisition of Time Warner Inc. It also brings momentum at a key time: Verizon is in the early stages of building a fifth-generation network, part of an industrywide effort to increase speeds and find new revenue sources.

But keeping customers loyal in a cutthroat industry may not be easy, especially as 5G service brings a wave of upheaval. Verizon’s churn -- a term that describes the rate of customers canceling service -- climbed to 1.04 percent in the period.

While competition around service-plan prices has been fairly stable, Verizon has had to offer aggressive discounts on phones and that will probably continue, Chief Financial Officer Matt Ellis said in an interview Tuesday. But don’t expect Verizon to lead a price battle at this point.

“We will be disciplined and methodical,” Ellis said.

Verizon added 515,000 subscribers in the third quarter, topping the 468,000 prediction. That helped push its earnings to $1.22 a share, 3 cents above Wall Street estimates.

Oath Ouch

Not everything is going smoothly at Verizon. The New York-based company said it probably won’t meet a 2020 goal of $10 billion in revenue from its Oath division, an online media and advertising business built out of its Yahoo and AOL acquisitions.

The maturing wireless-subscriber market and increased competition from smaller rivals like T-Mobile US Inc. also have raised concerns about Verizon’s ability to sustain profit and sales growth. The company is in the second year of a $10 billion cost-reduction program that includes buyout offers to as many as 44,000 managers and the shift of 2,500 jobs to contract partner Infosys Ltd.

Under Chief Executive Officer Hans Vestberg, who took the helm in August, Verizon has made the expansion of its network the key focus. Earlier this month, it became the first carrier to offer residential broadband and TV over wireless 5G technology. The service, starting at $50 a month, beams signals to home receivers and has launched in four cities.

Verizon’s 5G-heavy focus is different than that of its closest peer, AT&T. Though that company also is preparing a 5G network, it’s also been busy turning itself into a media conglomerate through the acquisition of Time Warner in June.

“At a time when AT&T’s story is clouded by balance-sheet concerns,” MoffettNathanson analyst Craig Moffett said, “Verizon’s story is blissfully simple.”

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, John J. Edwards III

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