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What Will Q4 Earnings Unfold for Verizon (VZ) FiOS Business?

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Verizon Communications Inc. (VZ - Free Report) is scheduled to release fourth-quarter 2017 results on Jan 23, before the market opens. The company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s take a look at the company’s Wireline segment as well as its operations, revenues, operating margins and subscriber count to gain an idea about how the company will fare this earnings season.

(See more in Verizon Communications Q4 Earnings: What's in Store?)

(To know more about Verizon’s Wireless Segment, read Will Verizon Gain Postpaid Wireless Subscribers in Q4?)

Wireline Segment Operations

Verizon has been striving to enhance its wireline segment operations. The company has launched FiOS Instant Internet services along with fiber-to-the-home (FTTH) in greater New York City/northern New Jersey, Philadelphia and Richmond. Verizon has also sweetened its SMB (small and medium-sized business) services with a new video service, Fios Current TV.

Verizon has been aggressively expanding fiber optics networks to support 4G LTE, upcoming 5G wireless standards and wireline connections. Through multiple acquisitions, the company has strengthenedfiber-optic network assets. In many cities like Boston and Sacramento, Verizon has already started upgrading the city’s aging copper network infrastructure with fiber and wireless network to support high-end mobile and wireline services for smart city, residential and business applications. Besides Verizon, other major wireline operators, such as AT&T Inc. (T - Free Report) , Frontier Communications Inc. (FTR - Free Report) and CenturyLink Inc. (CTL - Free Report) have also decided to migrate to fiber-based network from copper. Verizon has been leasing this fiber network, which provides connectivity to more than 1,000 cell sites of different scales.

Revenues

Verizon’s Wireline segment accounts for almost one-third of its total revenues, evident from $7,662 million revenues reported in the third-quarter 2017 (24.16% of total revenues). The Zacks Consensus Estimate for fourth-quarter 2017 total wireline operating revenues is pegged at $7,676 million.

Coming to the sub-categories, Consumer retail revenues estimate of $3,237 million is higher than $3,204 million and $3,232 million recorded in third-quarter 2017 and fourth-quarter 2016, respectively.

Operating Metrics

The Zacks Consensus Estimate for fourth-quarter operating income of $112 million is above $65 million reported in third-quarter 2017. However, Verizon’s fourth-quarter 2016 operating income was $414 million.

Segment EBITDA estimate for the to-be-reported quarter is pegged at $1,665 million compared with $1,614 million and $1,879 million in third-quarter 2017 and fourth-quarter 2016, respectively.

Subscriber Statistics

The Zacks Consensus Estimate for FiOS video subscribers is pegged at 4.720 million for fourth-quarter 2017. The figure marks an improvement over 4.648 million and 4.694 million video subscribers in third-quarter 2017 and fourth-quarter 2016, respectively.

In the to-be-reported quarter, the company is expected to suffer a loss of 13,120 FiOS video subscribers compared with a loss of 18,000 in the previous quarter. However, the company had gained a net of 21,000 FiOS video subscribers in fourth-quarter 2016.

FiOS Internet subscriber count is estimated at 5.860 million, reflecting an increase over 5.803 million and 5.653 million subscribers in third-quarter 2017 and fourth-quarter 2016, respectively.

Net FiOS Internet subscriber addition is estimated at around 57,000 compared with the addition of 66,000 and 68,000 subscribers in third-quarter 2017 and fourth-quarter 2016, respectively.

Meanwhile, FiOS digital voice residence connections are estimated at 3.934 million, reflecting an increase over 3.920 million and 3.895 million subscribers in third-quarter 2017 and fourth-quarter 2016, respectively.

Net FiOS digital voice residential connections gain is forecasted around 13,500 compared with the addition of 11,000 and 13,000 connections in third-quarter 2017 and fourth-quarter 2016, respectively.

High-speed internet connection will drop to 1.143 million compared with 1.175 million and 1.385 million in third-quarter 2017 and fourth-quarter 2016, respectively. The company will lose 70,000 connections in the to-be-reported quarter compared with a loss of 76,000 connections in the last quarter.

Total broadband connections are expected to reduce to 6.966 million from 6.978 million and 7.038 million connections in third-quarter 2017 and fourth-quarter 2016, respectively. The company is likely to lose 15,070 connections in fourth-quarter 2017 compared with a loss of 10,000 connections in the last quarter.

Primary residence switched access connections are expected to decline to 2.716 million from 2.830 million and 3.230 million connections in third-quarter 2017 and fourth-quarter 2016, respectively. The company is likely to suffer a loss of 115,000 connections compared with a loss of 132,000 and 129,000 connections in third-quarter 2017 and fourth-quarter 2016, respectively.

Primary residence connections count is estimated at 6.647 million, reflecting a drop from 6.750 million and 7.125 million connections in third-quarter 2017 and fourth-quarter 2016, respectively. Loss of connections is likely to reduce to 103,000 from the losses of 121,000 and 116,000 connections in third-quarter 2017 and fourth-quarter 2016, respectively.

Total retail residence voice connections count is estimated at 7.022 million compared with 6.950 million in the last quarter. The company is likely to suffer a loss of 108,000 connections compared with a loss of 129,000 and 127,000 connections in third-quarter 2017 and fourth-quarter 2016, respectively.

Total voice connections are pegged at 13.249 million, up from 13.100 million connections in the previous quarter. The company is expected to suffer a loss of 249,000 connections in the to-be reported quarter.

Price Performance

Verizon portrays an impressive price performance. In the past six months, shares of Verizon have rallied 16.6% compared with the industry’s gain of 1.7%.

 

 

When compared with the market at large, the stock looks good as the S&P 500 index has gained 13.3%.

 

 

Our Take

Verizon’s persistent efforts to reinforce its wireline operations look impressive. Despite losses in FiOS video subscribers, the company has always enjoyed massive gain of FiOS digital voice residential connections and FiOS Internet subscribers. Per our estimates, the upcoming quarter is likely to witness the same.

Verizon’s FiOS technology is likely to witness considerable demand from residential customers once 4K video technology and Internet of things (IoT) technology gain popularity.

Accumulation of dark fiber will bolster Verizon’s cell network density and boost mobile backhaul network. The densification of cell network will help the company install and build its upcoming 5G network. Adoption of small cells has increased due to the inconvenience of installing large towers in inaccessible areas.

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