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Hans Vestberg, Verizon’s CEO.
David Paul Morris/Bloomberg
Verizon
Communications could be poised to deliver faster growth in profits and revenue, making possible continued dividend increases and earlier share buybacks.
That is the main message from an investor day the telecommunications company held on Thursday. Management elaborated its “network-as-a-service” strategy and unveiled new operating and financial targets.
Executives spoke about their units’ plans to win consumer and business customers, increase subscription revenue from existing clients, and expand into new markets enabled by nascent technologies like mobile-edge computing or the internet of things in the 5G era.
The pitch appeared to resonate with investors: Verizon stock (ticker: VZ) was up modestly in midday trading on Thursday, while the
S&P 500
was down 0.4%.
“We’re here today to talk about a very different Verizon,” CEO Hans Vestberg began, speaking from a stage at a Manhattan event space overlooking the Hudson River and the World War II-era Intrepid aircraft carrier.
There’s still work to be done in the next few years. Verizon’s guidance is for about 3% revenue growth this year and next, accelerating to at least 4% in 2024 and beyond. That would take sales from $110 billion in 2021 to about $124 billion in 2025.
Verizon didn’t put a number on its expected profit growth Thursday, but said that adjusted earnings before interest, taxes, depreciation, and amortization—or Ebitda—would increase “at or above revenue growth.” That means profit margins holding steady or expanding.
The unifying vision elaborated by Vestberg and his team was what the company calls its “network-as-a-service” strategy. That means expanding its 5G wireless and broadband networks to cover more consumers and businesses, and upselling those users on more services and products enabled by the telecom network.
Verizon expects its C-Band 5G network to cover 175 million people in the U.S. by the end of 2022, a year earlier than its prior guidance and up from 100 million today. “This is the fastest rollout I’ve ever been a part of,” said Verizon’s president of global networks and technology Kyle Malady. The company maintained its previous target of 250 million people on its so-called “5G Ultra Wideband” network by the end of 2024.
More coverage means more opportunities to get customers on premium 5G plans, which come bundled with streaming services, cloud storage, and other goodies. Verizon sees its average revenue per consumer wireless account growing at more than 2% a year through 2025, executives said on Thursday. Those upgrades will be the biggest driver of wireless revenue growth in the coming years, rather than adding new subscribers. Verizon expects 70% of its wireless subscribers to be on a premium unlimited plan by 2025, versus 33% today.
Verizon will also launch a new customer platform later this year called “+play.” That’s essentially a subscription aggregation and management product, which will allow customers to purchase subscriptions across entertainment, fitness, gaming, music, and more. It will include everything from
Disney
+, to
Netflix
,
to Calm, to
Duolingo
,
to Peloton. Customers subscribing via Verizon boosts revenue for the carrier and decreases wireless churn—or the percentage of customers who cancel each month—management said.
Other elements of Verizon’s NaaS plans include migrating prepaid subscribers from the recently acquired Tracfone to Verizon’s network, new business-to-business services like MEC or private networks, and growing its fixed-wireless access—essentially home internet delivered over Verizon’s 5G network—and Fios fiber-optic broadband services.
Verizon now expects to have between 4 million and 5 million FWA subscribers and 8 million Fios subscribers by 2025. Those would be up from 223,000 and 6.9 million, respectively, at the end of 2021.
Capital expenditure requirements will come down as the network upgrades advance, CFO Matt Ellis said, dropping from the approximately $22.5 billion expected this year, to $19.5 billion in 2023, and to about $17 billion annually beyond that. That will be a boost to free cash flow, which can be directed toward paying down debt and returning cash to shareholders.
Stock buybacks could be part of the equation earlier than previously indicated. Ellis said the company could begin repurchasing shares when its ratio of net debt to adjusted Ebitda falls below 2.25 times, versus 2.8 times at the end of last year. Verizon has a long-term target for leverage of between 1.75 times and 2.0 times.
Verizon stock has beaten the market so far in 2022, as volatile trading made its cheap valuation and stable telecom business more attractive. Shares have returned almost 6%, versus a 8% decline for the S&P 500 and 7% for the
Dow Jones Industrial Average.
Over the past two years, however, Verizon stock has only returned 7% including dividends, while the S&P 500 has returned 51% and the Dow has added 36%.
Write to Nicholas Jasinski at [email protected]
Source: https://www.barrons.com/articles/verizon-growth-capex-stock-buybacks-51646329652?siteid=yhoof2&yptr=yahoo