Reports results for the second quarter of 2019 on Thursday, August 1 before the open
Income expectation: $ 32.41 billion
It is not a good time to be enthusiastic about telecom companies such as Verizon (NYSE :). The shift from consumers to internet-based entertainment providers has made cables shorter, and their income from cable and media companies is constantly declining. Moreover, cut-throat competition on the wireless market is also damaging their margins.
This headwind is likely to put pressure on Verizon's Q2 revenue when it is tomorrow. They have already weighed heavily on the shares of the largest wireless network provider in the US, which this year performed considerably less than the wider market. Verizon only won 2% while the hit reached a new record and has risen more than 20%. The shares closed 1.3% yesterday at $ 56.64.
To survive in this challenging environment, the leading players in the US are trying different strategies. AT&T (NYSE :), for example, completed a $ 85 billion merger with Time Warner last year as part of its commitment to become a modern media giant, betting a lot on its upcoming video streaming service.
Last week, the US Department of Justice approved the acquisition by T-Mobile US (NASDAQ 🙂 of Sprint Corp. good, removing one of the biggest hurdles to an acquisition that consolidates the wireless industry and the number of players in the game.
Verizon's different approach to growth
However, Verizon takes a different approach. Instead of filling the balance with mega deals, Verizon focuses on improving the infrastructure and reducing costs. The new CEO of the company, Hans Vestberg, has so far avoided the major entertainment acquisitions that colleagues like AT&T and Comcast (NASDAQ 🙂 have pursued.
Instead, the courier has made smaller deployments aimed at improving his strategy to improve his network quickly. Due to the timely acquisition of Straight Path Communications last year, Verizon is ahead in the race to build a fifth-generation or 5G network, part of an industry-wide effort to increase speeds and unlock new sources of income.
5G wireless networks are crucial to the success of some futuristic applications, such as driverless cars, smart homes, and remote surgery – and this is an area where Verizon is firmly in charge.
In October, Verizon gained a head start in introducing residential broadband and TV services using 5G technology in four cities that serve as a testing ground for the company. It plans to roll out the service in parts of more than 30 cities before the end of the year.
This slow but steady approach does not generate too many headlines for the carrier. However, it clearly helps to maintain the moment of growth. In the, Verizon posted a 11% increase in net revenue to $ 5 billion from $ 4.5 billion a year earlier. The quarterly revenue increased by around 1% to $ 32.1 billion.
The company is saving $ 20 billion in costs by 2021. By the end of the first quarter, Verizon had already cut $ 3 billion in spending, helped by a voluntary departure program and cost savings.
Bottom Line
Verizon's profit report of tomorrow may not offer many good reasons to buy his shares, given the difficult working environment for telecom. But in our opinion, the downside risk during this period of emergency is also limited when it comes to Verizon. With its focused growth strategy, strong balance sheet, and growing dividend, Verizon is a solid – and relatively safe – choice for long-term investors.
