Verizon's third quarter earnings came in above expectations, but the wireless net additions fell short.
The company added 442,000 net postpaid wireless subscribers and saw Internet of Things (IoT) revenue jump 24 percent from a year ago to $217 million. Estimates for net postpaid additions were 773,000 via FactSet. Verizon lost 36,000 phone customers in the quarter.
Verizon reported third quarter earnings of 89 cents a share on revenue of $30.9 billion, down 6.7 percent from a year ago due to the sale of local landline assets. Excluding that divestment, revenue would have been down 2.9 percent. Wall Street was looking for third quarter revenue of $31.1 billion.
Non-GAAP earnings for the third quarter were $1.01 a share, two cents better than Wall Street estimates.
On the IoT front, Verizon closed the purchase of Sensity Systems, which adds to the company's smart city efforts.
And then there's the competition in the core business. Verizon's wireless business has been under pressure from the likes of T-Mobile and now Sprint amid low-cost data plans. Verizon ended the third quarter with 113.7 million retail connections, up 2.6 percent from a year ago. Churn in the third quarter was 1.04 percent, slightly higher than FactSet's 1 percent.
CNET's Roger Cheng noted that Yahoo may be a diversion that Verizon just doesn't need with its core business under pressure. Indeed, I'd argue that Verizon's acquisition strategy around IoT makes more sense than Yahoo does.
Verizon CFO Fran Shammo said the company was aiming to keep its most valuable customers:
"Competitive activity in the wireless market increased during the third quarter, as expected, and we responded in a measured way to grow and retainer valuable customer base by introducing new wireless plans and disciplined promotions. We have been successfully retaining our high-value postpaid smartphone base and improving service revenue trends."
Shammo added on a conference call that Verizon took a wireless subscriber hit at the end of the quarter due to the Samsung Galaxy Note 7 recall. Verizon also had a backlog for the Apple iPhone 7.
The key takeaways from the earnings call:
First to 5G: Shammo said: "Based on the outcome of our commercial pilot program, Verizon intends to be the first company to launch a 5G fixed wireless broadband solution in the United States." He later said that 5G will have broad applications.
Smart city: Shammo said: "You are starting to see us do a few things around smart cities because it is going to be an area of growth for the future. We demonstrate with certain cities where we are deploying it (5G) now that we can actually save the money and a lot of different things."
The Yahoo deal and the company's data breach: Shammo said: "We are still evaluating what it means for this transaction. This was an extremely large breach that has received a lot of attention from a lot of different people so we have to assume that it will have a material impact on Yahoo. Lawyers had the first call yesterday with Yahoo to provide us information but from what I understand it's going to be a long process. So unless Yahoo comes up with different process it going to take some time to evaluate this. We haven't reached any final conclusions around this issue."
Wireless revenue for the third quarter was $22.1 billion, down 3.9 percent from a year ago as customers migrated to unsubsidized device plans. Device payment plans are now 70 percent of phone activations.
Verizon said its wireline revenue fell 2.3 percent to $7.8 billion as the company added 90,000 FiOS Internet connections.
As for the outlook, Verizon said adjusted earnings for the year will be roughly the same as 2015.