Verizon Communications — the carrier that acquired AOL (and, as a result, us) earlier this year — reported its Q3 earnings today. The company posted revenues of $33.2 billion, with non-GAAP earnings per share of $1.04. Both beat analysts’ estimates: they had been expecting sales of $32.94 billion on an EPS of $1.02.
Net income was $4.2 billion, up 9.9 percent on the same quarter a year ago.
“Verizon continues to grow earnings by delivering network reliability and superior value that continues to attract new customers,” said Chairman and CEO Lowell McAdam in a statement. “Verizon Wireless posted another quarter of quality connections growth – even better than in the second quarter – while maintaining high customer loyalty and profitability. Meanwhile, fios customer growth also improved from the previous quarter. We expect future revenue growth from mobile over-the-top video, including digital advertising, and the Internet of Things.”
Breaking out into specific segments, Verizon Wireless had a quarter buoyed by new device sales. It reported revenues of $23 billion, up 5.4 percent over a year ago. While service revenues of $17.6 billion were down 4.1 percent, equipment revenues almost doubled to $4.3 billion, “as more customers chose to buy new devices with installment pricing.” The company now has 110.8 million retail connections, up 4.3 percent; and 105.8 postpaid subscribers, up 4.9 percent, adding 1.3 million in total in the quarter.
Wireline, meanwhile, continues to play second fiddle to Verizon’s wireless business. Consumer revenues in Q3 were $4 billion, up 2.8 percent on a year ago, with the company’s fiber-based fios services accounting for 79 percent of all sales at $3.4 billion. (Fios is also growing faster, up 7.5%.) The company has 17.4 million fios digital subscriptions and 18.7 million standard voice subscribers.
The results come at a time when Verizon — with its legacy in providing fixed and wireless telephony services — is trying to make a more concerted shift to new technologies like video and new revenue streams that ride on top of that new tech, such as mobile video advertising. This was the rationale for buying AOL for $4.4 billion, and AOL itself subsequently acquiring more of its own mobile ad assets in the form of Millennial Media.
The shift has also been playing out in Verizon’s product developments. They have included the launch of the Go90 mobile video service, which is aimed at a younger demographic and in general people who are watching their entertainment on mobile screens. The iOS and Android app is ad-supported and free and includes shows from traditional TV networks as well as online video and content from multi-channel networks and live events. We’ll be listening to today’s earnings call to see if Verizon sheds any light on how well this has done since launching officially earlier this month.
Other product moves have been more under the hood but no less important: the include the company merging its own so-called “supercookie” user tracking services from its own network with AOL’s own browser-based ad network tracking.
But perhaps more significantly for Wall Street, the shift has also been playing out in Verizon’s bottom line. Last quarter, Verizon beat on profits but fell short on revenue, and while the company raised its quarterly dividend in September in the interim period it also issued a notice that warned that growth may stall in the future.
“Full-year 2016 earnings may plateau at 2015 levels as the company manages near-term impacts,” according to a statement based on remarks by Verizon CEO Lowell McAdam. “These impacts include the commercial model change in wireless, year-over-year wireline financial comparisons following the expected first-half 2016 sale of operations to Frontier Communications Corp., and the ramp up of new business models for wireless video and IoT.”
For the moment, though, growth continues well and clear, with today’s 3.3 percent increase surpassing Q2’s.