Q3 2024 Earnings Summary
- Verizon's expansion of its fiber footprint leads to a 500 basis point (5%) higher wireless market share in markets where they have fiber, indicating significant cross-selling opportunities and growth in their mobility segment .
- Bundling mobility and fiber services reduces churn significantly, with a 50% reduction in mobility churn and a 40% reduction in fiber churn, enhancing customer retention and lifetime value .
- Fiber economics are improving over time, driven by cost reductions and faster penetration rates, resulting in higher profitability and attractive return on invested capital (ROIC) .
- Increasing capital expenditures (CapEx), cash taxes, and working capital needs could strain Verizon's financials, as an analyst pointed out: "So if my base case is that the tax regime remains the same. Cash tax is going up. CapEx is going up. Working capital... might go up."
- Limitations in fixed wireless access (FWA) coverage could hinder growth, with an analyst noting that while ultra-wideband is expected to reach 80-90% of the population, "the FWA target is roughly like 60% of homes. What holds that percentage back relative to the 90% plus?"
- Uncertainty around broadband ARPU and fiber investment returns, as the company admits, "we don't report a specific broadband ARPU number," and provides limited details on the base case for penetration and ARPUs from fiber builds over a 5-year period.
-
CapEx Guidance
Q: Will CapEx remain steady or change over next years?
A: Verizon plans to maintain a steady CapEx level of $17.5 to $18.5 billion per year as a business-as-usual level without significant increases. They don't foresee large investments in the near term since there are no spectrum auctions or 6G in their current plans. However, if they see opportunities to invest more for growth, they may adjust their CapEx accordingly. -
Service Revenue Outlook
Q: Should we expect acceleration in service revenue growth?
A: Verizon expects to be at or above the midpoint on service revenue this year, with actions taken to position for sustained growth. These include improvements in volume and pricing, growth in fixed wireless access, and a positive turn in prepaid. They still face headwinds with primary amortization but are focused on initiatives that drive revenue growth. -
Free Cash Flow Expectations
Q: Is 2024 the high watermark for free cash flow?
A: Verizon isn't guiding on free cash flow but anticipates factors such as EBITDA growth, potential interest rate movements affecting deleveraging, and higher cash taxes. Working capital is expected to be stable, with upgrades down 10% and customers holding onto phones longer, averaging 40 months. They aim to remain disciplined in their financial approach. -
Fixed Wireless Access Growth
Q: Is fixed wireless access subscriber growth slowing down?
A: Verizon acknowledges a temporary slowdown in fixed wireless access growth due to expansion into less dense suburban and rural areas, and ramping up Fios from 500,000 to 650,000. They expect to be at the lower end of adding 350,000 subscribers in the short term but foresee growth as both fixed wireless and Fios ramp up. -
Fiber Expansion Plans
Q: What are the expectations for fiber build-out and penetration?
A: Verizon plans to reach 35 to 40 million homes with fiber, aiming for penetration well north of 40%. They are seeing better first-year penetration with each new cohort and expect to boost ARPU as most customers choose the 1 gig plus plan and additional services. -
BEAD Program Impact
Q: How will the BEAD program influence your broadband strategy?
A: Verizon intends to participate in the BEAD program where it makes sense, particularly within their Fios footprint, but expects only a very small percent of the 35 to 40 million homes to come from BEAD funding. They will proceed with or without BEAD support. -
Frontier Deal
Q: Are you willing to pay more to complete the Frontier deal?
A: Verizon has a signed agreement with Frontier after a competitive bidding process and feels confident that the deal is fair and beneficial for all stakeholders. They are proceeding based on this agreement and awaiting shareholder approval, without plans to bid against themselves. -
AI and New Revenue Opportunities
Q: Can AI and satellite services be significant growth drivers?
A: Verizon sees AI as a future revenue opportunity, especially as applications move closer to the network edge for better latency and security, but it will take time for large language models to become products. For satellite services, it's too early to determine the size of the consumer opportunity, though there is potential in remote enterprise solutions. -
Perks Portfolio Growth
Q: Do you plan to expand your perks offerings?
A: Verizon aims to double its 7 million perks subscriptions to 14 million, focusing on exclusive, high-value partnerships that are margin accretive, such as those with Apple, Disney, Netflix, and MAX. They prefer deeper relationships with fewer partners to enhance economics and customer value. -
Fiber Investment Strategy
Q: Will you consider partnerships or JVs for fiber build-out?
A: While Verizon is open to different models, they haven't found third-party arrangements that meet their return on investment criteria. They maintain one of the best returns on capital in the industry and have so far pursued an organic, on-balance-sheet approach to fiber investment.