Will Wireless Pricing Competition Hurt Verizon's Q4 Profits?
Leading U.S. wireless carrier, Verizon Communications Inc. (VZ), apprehends that its earnings in the final quarter of 2014 would be hurt by higher promotional expenses and price cuts. Following the news, the company’s shares fell nearly 1% during the aftermarket trading session yesterday.
In an effort to expand its customer base, the company is spending heavily on promotion and is also offering lucrative discounts. These strategies are likely to impact the company’s wireless segment EBITDA and EBITDA service margin in the coming quarter.
Meanwhile, in fourth-quarter 2014, Verizon’s rivals invested handsomely in promotions in a bid to lure customers. In a limited period offer, U.S. telecom behemoth AT&T Inc. (T) is offering its Mobile Share Value customers a 15 GB shareable data plan for $100. Before this, AT&T customers could avail only 10 GB of data for the same amount. This marks the second data plan price cut by the company in two months.
In the beginning of December this year, Sprint Corporation (S) further intensified the wireless pricing war in the U.S. after the company claimed that it will reduce the phone bills of AT&T and Verizon Communications customers by 50% if they switch to Sprint’s network.
On the positive side, Verizon expects to continuously witness robust wireless customer growth. Demand for 4G tablets and smartphones on its “More Everything” shared data plan has been pretty strong so far in the fourth quarter. Verizon further stated that the company will likely see EBITDA margin growth in the wireline segment for full-year 2014 and record capital spending of nearly $17 billion.
Verizon boasts a strong foothold in the wireless market and we expect further growth from higher penetration of devices and increasing market penetration of 4G LTE services. We also appreciate the various promotional plans that the company has taken over in the last couple of months. Attractive data plans will help the company gain market traction apart from driving its top line and bottom line in the long run.
Verizon Communications currently has a Zacks Rank #3 (Hold).
A better-ranked stock worth considering in this sector is Vonage Holdings Corporation (VG), with a Zacks Rank #2 (Buy).
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