Verizon Starts 2021 With a Yawn

Verizon’s VZ start to 2021 was in line with our expectation that it will see only modest wireless customer growth during the year, with a nice increase in revenue per customer. The FiOS business looks to finally be building momentum, posting a third consecutive quarter of solid customer growth. While FiOS is a small part of Verizon’s total revenue, we view its fiber network as a key strategic asset. Free cash flow was also very strong during the quarter, though the spending needed to deploy C-band spectrum has yet to commence. Our $57 fair value estimate is unchanged, and we view Verizon shares as fairly valued.

Verizon’s less aggressive stance in the wireless market versus AT&T T and T-Mobile TMUS showed clearly in gross postpaid wireless phone customer additions, which dropped about 6% year over year during the first quarter, despite lapping the onset of the pandemic. Verizon’s characteristically loyal customer base remains firmly in place, with churn metrics modestly better than a year ago. The firm lost 178,000 net postpaid wireless phone customers during the quarter, worse than 68,000 lost a year ago, but underlying trends are more favorable than these numbers indicate. The year-ago number includes a quick ramp in business customers taking service to handle remote work and school. The first quarter is also typically the weakest of the year for Verizon, and its postpaid phone customer base remains 0.6% larger than a year ago. Wireless services revenue increased 2.4% year over year, the fastest pace since 2019, with revenue per postpaid account up 2.1%.

Residential fixed-line revenue grew 0.7% versus a year ago, the first increase in at least two years, with 66,000 net broadband customer additions during the quarter. After years of treading water, Verizon’s broadband customer base has grown nearly 4% over the past year. The firm continues to lose television customers at a steady clip owing to industry pressure and the decision to deemphasize this low-margin service.

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