Verizon Communications Inc. (VZ) - Get Report investors will be looking for more news on several fronts when the telecom giant reports third-quarter earnings on Thursday morning, notably the impact of less generous iPhone promotions this year, the telecom's preparations for 5G, and the impact of an larger-than-previously-announced data breach at Yahoo!
Investors will also listen for details about the departure of key digital media executive Marni Walden, as well as a big content deal that Verizon was supposed to announce in September. Verizon CFO Matthew Ellis will be answering questions on Verizon's earnings call.
Shares of Verizon are down 11% so far this year. Wall Street expects Verizon to earn 97 cents per share from $31.4 billion in third-quarter revenues.
This year's more modest iPhone promotions so far suit Verizon well. Last year, T-Mobile (TMUS) - Get Report and Sprint (S) - Get Report drove aggressive and costly promotions with free trade-in deals; this year, Verizon offered a $300 iPhone 8 discount with a qualifying trade but has already discontinued it. The launch of the high-end iPhone X could restart the promotional battles, however, when pre-orders for the new Apple (AAPL) - Get Report device start Oct. 27.
"We believe the slower-than-expected promotional environment will benefit [Verizon] in Q3, with a second straight quarter of positive postpaid handset adds," said Jennifer Fritzsche of Wells Fargo Securities LLC, who expects 185,000 subscriber additions in the quarter, versus Wall Street forecasts of 196,000.
Cowen & Co. analyst Colby Synesael has a more bullish outlook, calling for Verizon to add 230,000 post-paid handsets. "[D]espite competitors targeting Verizon, we believe Verizon is holding up well since launching Unlimited in February," he wrote. "With lackluster iPhone 8/8 Plus sales thus far, we suspect customers are delaying their purchasing decisions until the iPhone X release next month."
The third quarter is also the first full earnings period in which Yahoo! has been a part of Verizon's Oath digital media platform.
While Ellis will discuss ways that Verizon can leverage the 1.3 billion users across Yahoo!, AOL, the Huffington Post and its other digital brands, investors will want updates on the impact of security breaches at Yahoo! Verizon disclosed earlier in October that three billion Yahoo! user accounts were compromised as part of a 2013 breach -- triple the number that Yahoo! first disclosed last year. A separate breach in 2014 involved 500 million accounts.
Verizon was smart enough to negotiate some protections against the hack. Former Yahoo! parent Altaba agreed to pay for 50% of any cash liabilities stemming from government investigations not related to those undertaken by the Securities and Exchange Commission, and to split costs for third-party litigation. Altaba is solely responsible for shareholder lawsuits and SEC investigations.
Ellis will also have the chance to discuss the departure of head media executive Marni Walden. The telecom said recently that Walden will leave in February, at which timeformer AOL boss Tim Armstrong will oversee the Oath businesses.
On the topic of media, expect questions about a statement that Verizon Chairman and CEO Lowell McAdam made at a Goldman Sachs (GS) - Get Report conference in September. McAdam said then that the telecom would likely announce at least one big content deal that would play across its wireless video and pay-TV services before the end of the month.
Verizon has been the subject of wild speculation about its next acquisition, with reports linking the telecom to everyone from Charter (CHTR) - Get Report to Time's (TIME) flagship Time Magazine to Pandora (P) and Twitter (TWTR) - Get Report . Cowen's Synesael suggested that investors will pry for more detail about Verizon's strategy. "Questions also revolve around M&A, especially as the carrier's content strategy seems less certain and management recently put to rest any possibility of a merger with Charter," he wrote.
While Verizon has less exposure to cord cutting than AT&T (T) - Get Report , which bought DirecTV, the telecom still faces competition from Charter and Altice (ATUS) - Get Report . CFO Ellis may give a window into the pace of pay-TV subscriber losses.
Ellis will likely be happier discussing the telecom's trials for 5G wireless services in 11 cities. Verizon is testing the next generation service and spending billions on fiber to support 4g and 5g wireless, as well as its high-speed broadband and video FiOS service.
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