Verizon (VZ) - Get Report was late to the wireless industry's unlimited data party, but the company's new plans drew an unexpectedly large number of wireless subscribers in the second quarter. Looking forward, Verizon CFO Matt Ellis said during a Thursday investor call that the carrier can improve declining wireless sales and improve margins in the second half of the year, and suggested that Apple's (AAPL) - Get Report launch of the iPhone 8 later this year will help.
Shares of the telecom gained 6.5% to $47.30 early Thursday afternoon, after Verizon said it added 614,000 net post-paid accounts, including 368,000 phone accounts, in the second quarter. Earnings of 96 cents per share matched expectations, while sales of $30.5 billion topped expectations of $29.81 billion.
Verizon's Ellis told investors during the carrier's earnings call that the gains show that network quality still matters in a world of unlimited pricing and streaming video deals. "We wouldn't get those results if a better network experience didn't matter to customers," he said. "Clearly it does."
Conveniently for Verizon, wireless service testing organization RootMetrics reported Wednesday that Verizon had the top scores for wireless network reliability and speed, among other categories, in the first half of the year.
The carrier introduced an unlimited plan mid-way through a dismal first quarter, in which it lost 307,000 net post-paid accounts and 289,000 phones.
"[Verizon] promised a better Q2 than Q1 -- and delivered," Wells Fargo Securities LLC analyst Jennifer Fritzsche wrote of Thursday's report.
More of What's Trending on TheStreet:
- Ford's Most Popular Pickup Truck Turns 100 Years Old on Thursday - Here's a Look Back
- AstraZeneca Shares Crash the Most on Record After Key Cancer Drug Fails
- Facebook Just Gave a Glimpse Into One of Its Biggest New Businesses
- Apple's iPhone 8 Is Coming, and It Could Be in Your Hands Very Soon
The turnaround was impressive, Fritzsche noted, "especially given the amount of competitive behavior seen in the marketplace in the quarter." Sprint Corp. (S) - Get Report , for instance, offered free service for a year to new customers who switch from another post-paid plan.
The second quarter was not entirely rosy, however, as Verizon's wireless revenues and margins fell.
Wireless service revenues declined nearly 2% to $21.3 billion in the quarter, as the shift to unlimited plans reduced overage fees. Wireless Ebitda margins dropped from 47.8% a year ago to 45.8 %.
Other carriers have improved margins amid the unlimited data competition. AT&T (T) - Get Report posted record wireless services Eibtda margins of 50.4% in the second quarter, as its DirecTV and HBO video promotions helped reduce customer churn. T-Mobile USA Inc. (TMUS) - Get Report boosted Ebitda margins from 37% to 40%, benefiting from its increased scale.
Verizon expects wireless revenue to improve in the second half.
While the launch of the iPhone 8 will likely spark intense promotions among the major wireless carriers, Ellis suggested the tenth-anniversary Apple phone would help Verizon. "When people get a new device with new functions they want it on the best network," he said.
Separately, Verizon closed the $4.48 billion purchase of Yahoo! in the quarter. The businesses have one billion unique monthly users and generate $7 billion in sales. Ellis said that AOL boss Tim Armstrong can wring $1 billion in expense reductions and other benefits through 2020. "Tim and the team are just getting started integrating those businesses," Ellis said.