Verizon narrowly beat Wall Street profit and revenue estimates as it added more customers in the second quarter (due to a surge in new tablet customers) and benefitted from an industry shift away from subsidized smartphone purchases.
The nation’s largest wireless carrier posted earnings per share of $1.01, compared with 78 cents per share a year ago. Sales reached $31.5 billion in the quarter, a 5.7 percent increase over a year ago and ahead of analyst expectations of $31.1 billion. Excluding one-time items, its profit per share of 91 cents edged ahead of analyst estimates of 90 cents per share.
Operating income reached $7.7 billion, a 17.2 percent increase from a year ago — and the sixth consecutive quarter of earnings growth.
Verizon added 1.4 million net new customers in the quarter. Most of those gains — roughly 1.15 million — came from tablets and Internet-connected devices.
While a surge in popularity of tablets and other non-phone devices is a clear boon to Verizon and the rest of the industry, the long-term economics of these customers raises a red flag. MoffettNathanson’s Craig Moffett notes that because of discounts, promotions and other giveaways, the average tablet customer holds a lifetime value of $100. A phone subscriber is worth 16 times that, according to his estimates.
Still, Verizon’s growth in post-paid customers — including tablet users — was up 53 percent from a year ago; a remarkable feat, as aggressive competitors like T-Mobile have made aggressive attempts to lure away subscribers.
The customer’s average monthly bill increased 4.7 percent to $159.73, boosted primarily by a shift away from subsidizing the cost of new smartphones. Wireless carriers have encouraged customers to sign up for financing plans that let customers upgrade to new phones more quickly than existing plans that could take up to two years before subscribers could buy phones at a discount.
Verizon’s Edge installment plan lowers the service plan charges — but adds the cost of the phone, which it spreads out in 20 monthly payments.