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Verizon to Gain From Solid Wireless Business, Risks Stay

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On Jan 7, we issued an updated research report on Verizon Communications Inc. (VZ - Free Report) .

By the end of 2018, this largest U.S. wireless carrier (by subscribers) has introduced the world’s first commercial 5G service — Verizon 5G Home — in parts of Houston, Indianapolis, Los Angeles and Sacramento to give customers the first taste of commercial 5G network. It has achieved a feat of 5G firsts in collaboration with its technology partners like Nokia Corporation (NOK - Free Report) , QUALCOMM Incorporated (QCOM - Free Report) and Ericsson (ERIC - Free Report) , and now aims to expand broadband Internet and launch 5G mobility service across the country. Verizon is also seeking first mover advantage in the 5G race as it plans to launch commercial 5G smartphones in the market in the first half of 2019 in collaboration with Samsung.

The telco behemoth continues deploying the latest 4G LTE Advanced technologies to offer faster peak data speeds and capacity for consumers, led by customer-focused planning, disciplined engineering and strategic investments. It has spurred technological innovation and economic development while making the ecosystem more pervasive with 4G LTE. The company firmly believes that 5G has immense possibilities in store. Management remains bullish on the industry's ability to grow revenues through greater penetration of smartphones and cloud computing as it believes that 2019 will bring more innovations and opportunities for its customers.

Further, Verizon has been looking to slash costs as it ramps up investment in its next-generation 5G network, which is expected to better position itself for future growth. The company announced that it would write off a majority of its media business — Oath — which includes Yahoo and AOL, due to lower-than-expected performance. Starting Jan 8, 2019, Verizon Media will replace the Oath brand. It also announced that approximately 10,400 employees are going to separate from the company by the end of June 2019 as part of voluntary program.

Verizon expects solid traction in its wireless business to optimize growth opportunities in the 5G era while downplaying competitive pressure. Owing to operational efficiency, this Zacks Rank #3 (Hold) stock has returned 7.5% against a decline of 5.2% for the industry in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.          



Risks

Verizon continues to face intense competition in the U.S. wireless market from rivals like AT&T and T-Mobile. In a bid to expand its customer base, the company is spending heavily on promotion and lucrative discounts, which is weighing on margins. Adoption of several unlimited data plans has also resulted in a reduction of service revenues and lower average revenue per user.

Verizon’s wireline business is struggling with persistent losses in access lines owing to competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by cable companies.

Nevertheless, we remain impressed with the inherent growth potential of this stock as the company aims to gain from technologies like artificial intelligence, machine-learning, mobile-edge computing and 5G.

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