Verizon Posts Solid Q4 Results as C-Band Auction Looms

Verizon Communications VZ posted solid fourth-quarter results and offered a reasonably strong outlook for 2021, calling for wireless services revenue growth of at least 3% (up from 0.7% in 2020). However, quarterly results ignore the sizable elephant in the room: the C-band spectrum auction, which recently ended with more than $80 billion in winning bids. The firm can’t discuss the auction until the Federal Communications Commission reveals winning bidders, but Verizon ended 2020 with $22 billion in cash on hand, a huge pile that indicates it was a big spender. As the C-band auction heated up late last year, we lowered our fair value estimate to $57 per share from $59 on the expectation that Verizon would spend $40 billion to acquire new spectrum licenses; that estimate still looks reasonable to us. We believe the shares are fairly valued.

The most interesting element in Verizon’s fourth-quarter results was continued weakness in gross wireless customer additions set against low customer defections and a nice jump in revenue per account. The firm added 279,000 net new postpaid phone customers during the quarter, down from 791,000 a year ago, with gross additions down more than 20% and monthly phone customer churn dropping to 0.80% from 0.86%. Average revenue per account increased 2.3% year over year, the best result in 18 months. While the pandemic likely affected the quarter and Verizon’s results lagged those of T-Mobile TMUS (824,000 net postpaid phone customer additions), we believe this points to the industry-wide benefits of Sprint’s disappearance. Despite the hype around 5G and the iPhone 12 launch, customers seem less interested in switching carriers. We don’t expect wireless prices will shoot sharply higher in the coming years, but reduced customer switching bodes well for carrier profitability.

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