Photo Credit: Mike Mozart

Key Takeaways

Once the dominant player in telecom, Verizon (VZ) begins to face stiff competition with the emergence of T-Mobile (TMUS) and already established AT&T (T). T-Mobile’s emergence as a prominent cellular provider has altered the landscape of telecommunications. Consumers are no longer confined to 2 year plans which have now been replaced by month to month contracts. Furthermore, each provider now covers a customer’s early termination contract when they change provider. Cut throat pricing competition has put additional pressure on margins in this three horse race. This can be concerning since services and equipment are Verizon’s two largest sources of revenue. That being said, Verizon’s profits have steadily increased thanks to three straight quarters of positive earnings surprises. The nation’s largest wireless provider is poised for another quarter of impressive earnings when they report Q4 2015 earnings January 21, before the markets open. The Estimize consensus calls for EPS of $0.90 and revenue of $34.197 billion, slightly higher than Wall Street’s estimates. Compared to Q4 2014, this represents a projected YoY increase in EPS and revenue of 26% and 3%, respectively. Despite a price war, Verizon still remains an attractive investment due to its steadily increasing profits and generous dividends and buyback programs. 

Over each quarter of 2015, Verizon beat estimates with continual growth of its subscriber base. A major component of Verizon’s revenue is consistently drawn from the number of subscribers to its service. At the moment, wireless services accounts for almost 70% of Verizon’s revenue with the remainder coming from various different sources. Despite stiff competition, Verizon enjoys a strong foothold in the wireless market and expects to grow as they continually  roll out new products and services. The telecom company routinely introduces new 4G products and has now experimented with 5G technology. Superfast connections not only leverage one company over the other, but is essential to the exponential growth of Internet connected devices. Verizon has also churned out new products to increase its exposure as a leading content provider. In late 2015, Verizon introduced its mobile video streaming service , Go90 to target users on the go. Moreover, the telecom company operates a fiber optic network, Verizon Fios, and acquired AOL in mid 2015, further driving revenue growth. Verizon faces a number of short term threats, including a saturated wireless market, intensifying competition, heavy capital spending and regulatory risks. Regardless, Verizon’s upside should outweigh the downsides coming into their Q4 2015 earnings this Thursday.