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January 22, 2013

Verizon Books Record Revenue But Handset Subsidies Slow Earnings

By Gary Kim, Contributing Editor

The latest quarterly report from Verizon (News - Alert) Communications, despite showing record levels of growth for the mobile business, also showed the cost of such growth and the device subsidies required to sell most of those subscriptions, putting a drag on earnings.

That has been a problem for AT&T as well.

At year-end 2012, smartphones accounted for more than 58 percent of the Verizon Wireless (News - Alert) retail postpaid customer phone base, up from 53 percent at the end of third-quarter 2012.

Verizon reported wireless profit margin  of 41.4 percent, down from 50 percent in the third quarter and 42.2 percent in the same quarter of 2011.

Verizon Communications reported a 8.5 percent year-over-year increase in service revenue in the fourth quarter of 2012, with an 8.4 percent year-over-year increase in retail service revenue. Retail postpaid ARPA (average revenue per account) grew 6.6 percent over fourth-quarter 2011, to $146.80 per month. Note the change from ARPU to ARPA.

In fourth-quarter 2012, wireless operating income margin was 24 percent and segment EBITDA margin on service revenue (non-GAAP) was 41.4 percent, down 80 basis points from fourth-quarter 2011. For full-year 2012, operating income margin was 28.7 percent, up 230 basis points from full-year 2011; segment EBITDA margin was 46.6 percent, up 180 basis points year over year.

In its wireless business, Verizon had 2.2 million retail net additions, including a record-high 2.1 million retail postpaid net connections, reaching a total of 98.2 million total retail connections with 92.5 million total retail postpaid connections.

The fixed networks business saw a 4.1 percent year-over-year increase in consumer revenue, with consumer ARPU (average revenue per user) up 9.5 percent year over year, to $105.63 a month.

Verizon continued to make steady, slow progress in growing sales of FiOS (News - Alert) Internet and TV services, adding 144,000 FiOS Internet and 134,000 FiOS Video net customers.

Verizon now serves 5.4 million total FiOS Internet and 4.7 million total FiOS Video customers.

Due to the impact of non-operational items, Verizon reported a loss of $1.48 in earnings per share in fourth-quarter 2012, compared with a fourth-quarter 2011 loss of 71 cents per share.

In fourth-quarter 2012, Verizon’s consolidated quarterly operating revenue exceeded $30 billion for the first time in company history. This represented a 5.7 percent increase compared with fourth-quarter 2011 and was the company’s highest year-over-year quarterly growth rate in 2012.

For full-year 2012, Verizon’s revenue totaled $115.8 billion, an increase of 4.5 percent, or $5 billion, compared with 2011. In fourth-quarter 2012, Verizon saw year-over-year revenue increases across all strategic growth areas: 8.5 percent for Verizon Wireless service revenue, 15.7 percent for FiOS revenue and 5.3 percent for strategic enterprise services.

Cash flow from operating activities totaled $31.5 billion in 2012, an increase of 5.7 percent compared with $29.8 billion in 2011.

Fourth-quarter 2012 fixed network operating revenue was $10 billion, a decline of 1.5 percent compared with fourth-quarter 2011. Consumer revenue grew 4.1 percent compared with fourth-quarter 2011. On an annual basis, 2012 consumer revenue totaled $14.0 billion, an increase of 3.2 percent compared with 2011 and Verizon’s highest annual revenue growth rate in consumer wireline in 10 years.

Consumer ARPU for wireline services increased to $105.63 in fourth-quarter 2012, up 9.5 percent compared with fourth-quarter 2011.

ARPU for FiOS customers continues to be more than $150. FiOS services produced about 68 percent of consumer wireline revenues in fourth-quarter 2012. About two-thirds of FiOS consumer customers have purchased a "triple play" of phone, Internet and video services.

For 2012, wireline operating income margin was 0.2 percent and wireline EBITDA margin (non-GAAP) was 21.3 percent, including the negative impact of fourth-quarter storm recovery.

Edited by Brooke Neuman
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