Is Verizon A Buy Amid Wireless, Broadband Competition Vs. Cable?
  
While Verizon Communications ( VZ) has consistently underperformed the S&P 500, the telecom giant often attracts income-oriented investors, thanks to its dividend. If 5G wireless services reignite earnings and revenue growth, VZ stock might have much greater appeal.
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Meanwhile, Verizon stock has gained 6% in 2024. Also, VZ stock retreated 4% in 2023.
Heading into 2024, one big issue for Verizon stock was its consumer wireless business amid subscriber losses last year. Analysts have been expecting a rebound.
VZ Stock: Consumer Business Rebound Underway?Verizon reported first-quarter earnings that fell from a year earlier but topped Wall Street estimates.
Also, Verizon said it lost 68,000 postpaid phone customers, a closely watched financial metric. Analysts had predicted a Q1 loss of 92,000 postpaid phone subscribers — customers that spend the most monthly.
In Q1,Verizon lost 158,000 postpaid consumer subscribers, less than a year earlier, and added 90,000 business postpaid subscribers. Cable firms such as Comcast ( CMCSA) continue to bundle wireless services with broadband.
Verizon added 354,000 fixed wireless broadband subscribers in Q1, slightly below estimates of 364,000. It had 3.4 million wireless broadband customers at the end of the quarter. Further, Verizon is targeting 4 million to 5 million fixed broadband customers by the end of 2025.
The big question is whether Verizon has enough radio spectrum to expand 5G wireless broadband services going forward.
Verizon Stock: Brand Loses EdgeRising interest rates and Treasury bill yields have been a headwind for dividend paying stocks. A Verizon stock buyback has been delayed by purchases of radio spectrum needed for 5G wireless services.
New York-based Verizon may be in a tough position as wireless industry growth slows amid competition with AT&T ( T) and T-Mobile US ( TMUS), analysts say. Cable TV companies continue to gain traction in wireless services.
The Verizon brand also has lost some oomph as the company fights to regain its marketing claim to operating the highest quality wireless network.
Amid management changes, the company is focusing on generating growth in service revenue, free cash flow and earnings before interest, taxes, depreciation and amortization.
It's taking much longer than expected for 5G synergies to kick in.
Verizon's consumer wireless business has yet to get a material revenue lift from 5G smartphone users. Also, revenue from 5G business services using private networks has disappointed.
Verizon Stock: 5G Network Build-Out KeyVerizon owns mid-band and high-frequency millimeter wave radio spectrum. Its 5G network now is available to 200 million people in the U.S.
Revenue growth remains an issue. Data-gobbling mobile video hasn't panned out as a big moneymaker. Verizon has focused on upgrading consumers to unlimited data plans to boost average monthly revenue per user.
Verizon expects 5G business services using private network links to gain momentum in 2024.
Also, it's investing in "mobile-edge compute" sites.
Verizon has partnered with Amazon Web Services, the cloud computing arm of Amazon to develop 5G apps for the web-connected industrial devices. Another partner is IBM ( IBM).
Pundits expect 5G wireless to have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.
VZ Stock: New Management TeamAt a recent Morgan Stanley conference, Verizon said it plans to use artificial intelligence technology to improve customer service and lower operating expenses.
Management changes continue. Verizon in December hired a new chief marketing officer, Leslie Berland. She held the same position at Peloton Interactive ( PTON).
Much of Verizon's top management has come from outside the telecom firm. Verizon CEO Vestberg held the same post at network gear maker Ericsson ( ERICY) before joining Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, both came to Verizon in 2017.
In addition, Verizon in March 2023 named Sowmyanarayan Sampath as CEO of the Verizon Consumer Group. Sampath earlier led the Verizon Business Group. In December, Verizon let go Manon Brouillette, the head of the struggling consumer business.
Kyle Malady, the head of global networks and technology, was named CEO of Verizon Business Group.
Further, Verizon chief marketing officer Diego Scotti in mid-May 2023 stepped down after nearly nine years in the role.
Verizon Stock: Market Share LossesAlso, Verizon in November 2022 closed the $6.25 billion acquisition of Tracfone from Mexico-based America Movil ( AMX). Tracfone sells prepaid wireless services. If a recession hits, all U.S. wireless firms will step up marketing in the low end of the wireless market — prepaid customers.
Meanwhile, Verizon's efforts to diversify into internet content backfired.
Verizon in May 2021 sold a 90% stake in its media and advertising business to Apollo Global Management for $5 billion.
Still, content partnerships are key to bundling products.
Verizon has partnered with Walt Disney ( DIS) in video streaming services. Verizon also has partnered with Apple ( AAPL) for music services and with sports leagues.
VZ Stock FundamentalsVerizon earnings for the quarter ended March 31 fell 4% to $1.15 on an adjusted basis. Revenue for Verizon stock rose 0.2% to $33 billion.
A year earlier, the Dow Jones wireless giant earned $1.19 a share on revenue of $32.9 billion. Analysts had projected Verizon earnings of $1.12 a share on revenue of $33.2 billion for the quarter.
Wireless service revenue climbed 3.3% to $19.5 billion versus estimates of $18.67 billion. Although Q1 is usually seasonally weak, Verizon has pushed through price hikes that boosted wireless services revenue.
In Q1, earnings before interest, taxes, depreciation and amortization, known as EBITDA, rose 1.4% to $12.1 billion, just below estimates of $12.4 billion.
Verizon Stock: Is It A Buy Right Now?Verizon stock holds a Relative Strength Rating of 55 out of a best-possible 99, according to the IBD Stock Checkup. The best stocks tend to have RS ratings of 80 or better.
In addition, VZ stock has an IBD Composite Rating of 54 out of 99. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Meanwhile, Verizon stock holds an Accumulation/Distribution Rating of C. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
As of May 20, Verizon stock has retreated from an entry point of 43.21. Shares plunged below Verizon's 50-day moving average on the Q1 earnings report. VZ stock is not actionable and needs to build a new base.
Further, investors could take a look at other 5G stocks, such as chipmakers or network gear suppliers.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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