Will Verizon’s Postpaid Business Continue To Weigh On Its Earnings In Q3?

Wireless behemoth Verizon (NYSE:VZ) is slated to report its Q3 2022 results on October 21. We estimate that Verizon revenue will come in at about $33.9 billion for the quarter, roughly in line with consensus estimates and up about 3% versus the last year. We project that earnings will stand at $1.30 per share, marginally ahead of consensus estimates of $1.28 per share. So what are some of the trends that are likely to drive Verizon’s results? See our interactive dashboard analysis on Verizon Earnings Preview for more details on how Verizon’s revenues and earnings are likely to trend for the quarter.

Verizon’s business has been seeing major headwinds of late, with the carrier falling behind in the lucrative postpaid phone market. Over the most recent quarter (Q2 2022) postpaid phone net additions came in at just 12,000 compared to AT&T and T-Mobile who added 813,000 and 723,000 postpaid phone subscribers, respectively. While T-Mobile has been banking on the strength of its 5G network, AT&T has resorted to more aggressive promotional activity and marketing. Verizon is likely to see another weak quarter on the postpaid front, with net subscriber losses, as customer churn likely trends higher following recent service price increases. Verizon’s business segment could also see growth cool, as small and medium businesses, which were a big driver of growth in recent quarters, potentially see a slowdown as economic growth slows in the U.S. Verizon’s margins could also continue to face some pressure, due to rising inflation, mounting competition and slower top-line growth. For perspective, over Q2, operating margins for the consumer business declined to 27.9%,  from 31.9% last year.

However, we remain marginally positive on Verizon stock despite the current weakness, with a $46 price estimate, which is 25% ahead of the current market price. There are a couple of factors that could prove catalysts for the stock going forward, including Verizon’s ongoing deployment of a mid-band spectrum for 5G, which could help to meaningfully improve its wireless network performance. Separately, the company is also increasing its presence in the budget wireless market via TracFone and this is potentially well timed, given the tough economic environment. The stock also currently trades at just under 9x projected 2022 earnings, well below 16x earnings it traded at in 2019. See our analysis on Verizon Valuation: Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers.

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