Verizon Surpasses Earnings Predictions Despite Subpar Wireless Subscriber Growth

Just recently, Verizon Communications Inc. released its third-quarter results which surprisingly surpassed analysts’ expectations.

The results for this quarter show that Verizon’s revenue was a whopping $30.9 billion, generating 89 cents per share. This takes into account consolidated earnings of 89 cents per share; adjusted earnings per share (EPS) of $1.01, non-GAAP, which excludes non-operational items related to pension re-measurement and severance costs.

In this third quarter, Verizon gained 442,000 new retail postpaid net additions for its wireless division, which includes 357,000 new 4G LTE smartphones. The wireline division also witnessed growth, with 90,000 Fios Internet and 36,000 Fios Video net additions.

Total operating revenues in this third quarter were slightly down, with a 6.7 percent decrease when compared to the third quarter of 2015. However, when excluding revenues from the since-divested local landline businesses, the total operating revenues would only have declined by 2.9 percent year over year, on a comparable basis.

During this period, the cash flow from operations was an impressive $4.8 billion. There were third-quarter proceeds of $2.6 billion from asset-backed securitization transactions, which in prior quarters under the off-balance sheet securitization model would have flowed through cash flow from operations. Instead, these are well-reflected in cash flows from financing.

However, during this quarter, cash taxes were significantly higher compared to the previous year. This increase is primarily attributed to tax payments of $2.4 billion, related to the gain on the sale of wireline operations divested earlier this year. Many were pleased to see that Verizon also made a discretionary pension contribution, bringing full-year pension funding payments to approximately $750 million.

Operating income was substantial, at $6.5 billion, and the operating income margin stood at 21.1 percent. EBITDA (earnings before interest, taxes, depreciation, and amortization) was also noteworthy, totaling $10.5 billion. The consolidated EBITDA margin in the third quarter of 2016 was 33.9 percent.

This quarter’s earnings report from Verizon attracted increased attention given the company’s recent bid of $4.8 billion for Yahoo’s core business. This was after they had acquired AOL for $4.4 billion in a strategic move to bolster the communications division. But now, it appears that the Yahoo acquisition may be in jeopardy due to recent security breaches and accusations of spying against Yahoo.

During Yahoo’s earnings report, CEO Marissa Mayer stated their emphasis on integration into the Verizon family. Also to note, Verizon is one of a few telecom companies already testing 5G technology, which is the next step in wireless communication advancements.

Will this good news cause a stir in Verizon’s shares, and what does the uncertainty of the Yahoo deal mean for the company’s future? As investors and analysts scrutinize these results, only time will reveal the answers.