Verizon is struggling to compete in the wireless market, according to Wall Street research firm Deutsche Bank, and as a result the firm lowered its expectations for the company’s earnings per share for this year and next year below Verizon’s guidance. However, the firm described Verizon’s wireline business as a “bright spot” for the company.
“Wireline—Smaller, but still a bright spot,” the analysts wrote in a report sent to investors yesterday. “Our forecasts are unchanged, and call for -2.2% year-over-year growth (vs. -3.1% last quarter). We view continued improvement in margins as a key highlight (DBe: 23.2% in 1Q17, vs. 19.0% last year), given a focus on cost management/efficiencies.”
The analysts said that, during Verizon’s upcoming first quarter report, they expect to hear details about the company’s consummated acquisition of XO and new details on the timing of when Verizon might sell its data center assets to Equinix.
Deutsche Bank’s largely negative outlook on Verizon is primarily due to the competition that Verizon is facing in the wireless market. “We reduce 2017-2018 EPS by ~1%, mainly owing to weaker wireless margins,” the firm wrote. “Our new estimates 1-3% below consensus, and imply -2% EPS growth this year (vs. guidance for flat). For 1Q17, our forecasts are similarly 1% below the street, with our $0.98 EPS (-$0.03 from prior) comparing to consensus $0.99. We attribute weaker revenue/earnings growth to intensified competition in wireless, with recent moves (unlimited plans, handset promotions) aimed at defending share (at an admittedly higher cost). So, while we do raise postpaid phone volumes, we also trim margins to reflect “the new normal” (greater competitive landscape) in U.S. wireless.”
Deutsche Bank’s analysis on Verizon comes as the company reshuffles its front office. Verizon has tapped former Ericsson CEO Hans Vestberg as it restructures its business to focus on three primary areas. Vestberg, who was ousted from his post at Ericsson in July, was named executive vice president for the new Network and Technology team and will report directly to CEO Lowell McAdam when he starts Monday.
During the fourth quarter, Verizon reported decent Fios internet growth in 2016 as the telco ramped up available speeds and new tiers, but the loss of 282,000 traditional copper DSL customers put a dent in the telco's overall broadband subscriber base.
Indeed, Fios was the main star in Verizon’s consumer wireline portfolio during the fourth quarter with revenues growing 4.4%, to $2.9 billion, up from fourth-quarter 2016 with fourth-quarter 2015. Full-year Fios revenues were $11.2 billion in 2016, up 4.6% compared with 2015.