Verizon Bounces Back With Solid Customer Gains

Verizon Communications VZ posted solid second-quarter results, with customer metrics rebounding largely as expected from a soft start to the year. Revenue growth benefited from an easy comparison versus the worst of the pandemic impact a year ago and a step up in wireless customer retention efforts during the quarter. Management increased its wireless service revenue growth forecast for the full year, but Verizon continues to generally track our expectations. We don’t expect to materially change our $57 fair value estimate.

With 275,000 net wireless postpaid phone customer additions, Verizon’s second quarter was the strongest in four years, though this gain only slightly exceeded the 178,000 net loss during the first quarter. Gross customer signups have largely returned to prepandemic levels, though Verizon modestly improved customer losses versus 2018 and 2019. Its aggressive phone upgrade program, launched late in the quarter and set to end this week, likely helped this measure. Roughly 60% of new customers are choosing premium unlimited plans, pulling average revenue per account gradually higher. Versus a year ago, when the firm was waiving late fees and other charges, ARPA was up 4.6%, driving wireless service revenue up 5.9%. Total wireless revenue increased 12.5% thanks to a sharp rebound in phone equipment sales.

The revitalization of Verizon’s residential fixed-line business quietly continued during the quarter, with Fios revenue increasing 5.1% versus a year ago. This revenue stream has essentially been flat for the past three years, but demand for high-quality Internet access and a strong service offering have reignited customer growth in recent quarters. Verizon added 92,000 net residential Fios broadband customers during the quarter, expanding this customer base 7% versus a year ago.

Total revenue increased 10.9% year over year while the EBITDA margin dipped nearly 2 percentage points to 36%, thanks to the increase in low-margin equipment revenue.

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