Verizon puts a positive spin on customer losses in Q2

Despite the US telco's best efforts to put a positive spin on the numbers, it's share price dipped when the financial report was published and at the time of writing was down by around 5%. And yet, the report is arguably nothing to get too worked up about.

It's impossible to mask the fact that Verizon is bleeding customers at its Consumer business. Wireless retail prepaid net losses rocketed in the three months to the end of June to 624,000, more than double the figure recorded in the year-earlier quarter, impacted by the end of the Affordable Connectivity Program; the scheme, which provided financial support for households to help pay for mobile and Internet services, drew to a close at the end of May after the government failed to stump up the cash to keep it afloat.

Reuters quoted Craig Moffett of MoffettNathanson as saying that Verizon's share price decline stemmed from the ACP impact being worse than expected.

The newswire also pointed out that Verizon's overall revenue for the second quarter of $32.8 billion, an increase of just 0.6% on-year, missed an estimate of $33.06 billion from financial markets data provider LSEG. As Verizon itself noted, while service revenue grew, this was offset by a decline in wireless equipment revenue on the back of a slowdown in customer phone upgrades.

When it comes to postpaid phone customers, the metric by which US mobile operators measure their relative success, Verizon is still struggling to an extent, but its upward trajectory continues.

In Q2 the operator lost 8,000 postpaid phone customers, which is a significantly better result than in the same quarter last year when it shed 136,000 and a sequential improvement; losses in Q1 came in at 68,000, that figure also a year-on-year advancement.

Back in Q1 Verizon CEO Hans Vestberg said that Verizon was "on track to meet our financial guidance and to deliver positive Consumer postpaid phone net adds for the year." He did not repeat that postpaid projection this quarter – his comments overall were much woollier – but the company did reaffirm its guidance.

"The sequential and year over year improvements in the second quarter were a reflection of operational excellence and the moves we made to bring choice, value and control to our customers' lives," Vestberg said. "Our industry-leading network serves as a catalyst for how our millions of customers live their lives, and serves as the backbone for new and emerging technologies. We continue to build and expand on our strengths and successes with new products and services, and we are confident that this upward momentum will position us for future growth."

Analysts were naturally a little more circumspect.

"Second-quarter results were broadly as expected, but a couple of items under the hood disappointed investors," said Hargreaves Lansdown senior equity analyst Matt Britzman, in a research note. "New phone subscribers were better than expected, but a big chunk was due to existing customers taking out second phone lines. That’s not as attractive, raising questions about Verizon’s ability to attract new customers."

The analyst pointed to improving trends in mobile subscriber growth and the scope Verizon has to gain market share with increased 5G adoption through traditional mobile and fixed wireless broadband products.

"Verizon's putting a lot of eggs in this basket and has thrown billions at the task. We think this is the right move. But with the conclusion of the spending program upon us, and revenue growth hard to come by in recent years, the benefits need to start coming," he warned.

Verizon added 218,000 consumer fixed wireless customers in Q2, fewer than it brought in last year, but business FWA net adds grew to 160,000. In all, the operator has a FWA base of 3.8 million, an increase of 69% year-on-year, and generated quarterly revenues of $514 million during the quarter, an increase of $200 million.

Despite "eye watering" debt – Verizon's net unsecured debt totalled $122.8 billion as of the end of June on the back of hefty spectrum spending – Hargreaves Lansdown believes the company is in "acceptable financial shape."

That's hardly a ringing endorsement, and Verizon clearly has some work to do. But there's no cause for panic either, and that's probably the best the telco can hope for at this stage.