Verizon Q2 Revenue Flat as Wireless Unit Sales Decline 1.9% Despite Subcriber Rebound

Verizon slightly edged out Wall Street forecasts on the top line for the second quarter of 2017. While sales in its wireless segment continued to shrink year-over-year, it grew mobile subscribers in Q2 after a decline in the first three months of the year.

Total operating revenue in the second quarter was $30.5 billion, flat with with the year-earlier period and topping Wall Street consensus estimates of $29.9 billion. On a comparable basis (excluding divestitures and acquisitions), Verizon said consolidated revenue declined 2.0%. The company posted adjusted earnings of 96 cents per share, in line with expectations.

“Verizon reignited its growth engine in the quarter, both adding and retaining wireless customers while scaling our media business and continuing to invest in our superior networks,” CEO Lowell McAdam said in announcing the results.

Verizon’s Q2 wireless subscriber metrics were better than expected, independent analyst Craig Moffett noted, and that together with its “rare” beat on revenue suggests the telco doesn’t need to plot a major M&A course (a la AT&T, which acquired DirecTV and Time Warner).

“Today’s results will likely significantly reduce the pressure the company must have been feeling to, well, do something,” Moffett wrote in a research note to clients.

Verizon has recently been the subject of M&A rumors and speculation, including that it was contemplating a play for Disney (a rumor McAdam flatly denied) or a merger with Charter Communications. On Wednesday, Citigroup analyst Jason Bazinet said that Comcast should buy Verizon, a deal that would be worth upwards of $215 billion, to gain scale and operational efficiencies particularly on fiber-network buildouts.

In releasing the Q2 numbers, Verizon touted lower subscriber churn in its wireless business.

In mid-February, the telco launched the Verizon Unlimited wireless plan, which it said drove net postpaid phone additions of 358,000. By contrast, Verizon lost a net 289,000 retail postpaid phone accounts in Q1. Verizon’s retail postpaid wireless connections base grew 1.2% year over year to 109.1 million, and retail prepaid connections grew 1.4% to 5.4 million.

But overall wireless revenue declined 1.9%, to $21.28 billion, primarily “due to the lost overage revenue” — down 34% year over year — driven by plans introduced during summer of 2016, as well as the introductory unlimited offer, CFO Matthew Ellis said in the earnings call. Wireless equipment revenue increased 16%, to $4.3 billion, while wireless service revenue 6.7%, to $15.6 billion.

In Q2, Verizon lost a net 15,000 Fios Video customers, while adding a net of 49,000 Fios Internet connections. At the end of the quarter, Verizon had 5.7 million Fios Internet connections and 4.7 million Fios Video connections, year-over-year increases of 4.4% and 0.6%, respectively.

The results from Yahoo’s operating business are not included in Verizon’s Q2 results. The telco completed the acquisition of Yahoo on June 13.

Verizon said AOL’s revenue net of traffic acquisition costs were “consistent with” last year’s Q2 results (but it didn’t disclose what that was). Verizon’s Oath subsidiary, which combines AOL and Yahoo and is led by former AOL chief Tim Armstrong, represents about $7 billion in annual revenue.

As previously announced, the telco expects Oath to save more than $1 billion in cumulative operating expenses through 2020 from the AOL-Yahoo combo, including the recent 15% headcount reduction. Verizon took a $500 million pretax charge related to the Yahoo acquisition in the quarter.

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