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Verizon Takes $900 Million Hit Against Q2 Earnings for Go90 Shutdown, Other Charges

Verizon took a $900 million post-tax hit against earnings in the second quarter of 2018 for “product realignment” — which the company said was mostly related to its shutdown of the Go90 mobile-video service — and other one-time events.

In late June, Verizon announced it was pulling the plug on Go90, after the nearly three-year-old service never really got traction as a brand with its blend of short-form originals, live programming and licensed content. The company said Go90’s operations were combined with Oath, formed from the combination of AOL and Yahoo.

Verizon, in announcing Q2 results Tuesday, said $658 million of writedown was for product realignment mainly related to the discontinuation of the Go90 platform and associated content. The company recorded severance charges of $339 million for the quarter, along with acquisition- and integration-related charges of $120 million primarily related to Oath.

On the Q2 earnings call, departing CEO Lowell McAdam said Verizon would look to partners on the video front to distribute content over its wireless networks. “We’re not going to be owning content. We’re not going to be competing with other content providers,” he said. “We’re going to be their best partner from a distribution perspective.”

McAdam also told analysts that Verizon has no plans to spin off Oath, responding to a question alluding to a report by The Information earlier this month that Oath CEO Tim Armstrong had looked scenarios that included potentially buying out the digital-media unit from the telco.

“There is no intention of spinning out Oath in any particular format. We see the synergies that we expected to see and we see the future that we had hoped for,” McAdam said.

Verizon incoming CEO Hans Vestberg, currently the telco’s CTO, takes the reins from McAdam on Aug. 1. Vestberg, former CEO of Ericsson, is expected to double down on Verizon’s wireless-infrastructure buildout strategy — rather than make major media investments. Verizon announced plans Tuesday to launch 5G wireless networks in Houston starting in the second half of 2018, the third city after L.A. and Sacramento, Calif., that it’s initially targeting for 5G.

The signals coming out of Verizon indicate that it has completely rejected the “vertical integration fever that has gripped everyone else,” MoffettNathanson principal analyst Craig Moffett. Exhibit A on this front is AT&T’s Time Warner acquisition.

“For all the world, it looks like Verizon’s strategy really is to be a best-in-class wireless operator,” Moffett wrote in a July 24 research note.

Overall, Verizon beat Wall Street’s expectations on revenue and profit for Q2. The telco reported total revenue in Q2 was $32.2 billion (up 5.4%) and net income of $4.2 billion (down 5.2%). Adjusted earnings per share (excluding special items) of $1.20, versus EPS of 96 cents in Q2 of 2017. The net impact of Verizon’s Q2 one-time charges after tax was approximately $900 million, or 20 cents per share.

For Verizon’s Oath media business, Q2 revenue was $1.9 billion in the recent quarter, which the company said was relatively flat on a sequential basis.

The company’s wireless unit boosted quarterly revenue 5.5%, to $22.4 billion. But growth is still slowing: Verizon added 531,000 net retail postpaid connections (including 199,000 net phone adds) for Q2, which was down 13.5% from the year-earlier period. Total retail postpaid wireless connections increased 2.3% year over year, to 111.6 million.

Meanwhile, the telco’s wireline business continued to decline, with revenue falling 3.4%, to $7.46 billion. In Q2, Verizon added a net 43,000 Fios Internet connections but shed 37,000 Fios Video connections “amid pressures from cord-cutting of video bundles,” the company said in its earnings announcement. It ended the quarter with 4.56 million Fios Video subs (-2.3% year over year) and 5.96 million Fios Internet subs (+3.9% year over year).

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