AABA Altaba Inc

By Ryan Knutson and Anne Steele 

Verizon Communication Inc.'s deal to acquire AOL last year is starting to pay off.

The company said its AOL unit posted its highest first-quarter revenue in five years, helping the carrier to post a slim gain in revenue to $32.17 billion. Without its contribution of $669 million, revenue would have declined 1.5%.

The acquisition is part of Verizon's continued push into mobile video and advertising as it seeks to broaden its business beyond just phones and tablet subscribers. Earlier this week, the carrier said it was partnering with Hearst Corp. to buy Complex Media, an online publisher targeting young men, and has also submitted a bid for Yahoo Inc., according to people familiar with the matter. Verizon declined to comment on its interest in Yahoo.

Verizon's profit rose in the latest quarter, but the company reiterated that earnings may plateau this year and that labor negotiations could weigh on 2016 results. Revenue didn't meet analyst forecasts of $32.5 billion.

Shares of the company slipped 3.5% in midday trading Thursday to $49.92. Verizon is the first big telecom company to report its earnings for the quarter.

Last week, the Communications Workers of America and the International Brotherhood of Electrical Workers went out on strike after about 10 months of contract talks. Verizon is offering a 6.5% pay increase over the life of the contract, but is asking workers to shoulder more health-care costs and trim retirement benefits. The company is also looking to loosen rules that prevent it from sending employees to work temporarily in other parts of the country.

"Given the status of labor contract negotiations, there will be pressure on second-quarter earnings due to the timing of cost reductions," Verizon said in its earnings release.

For the latest period, a seasonally low-volume quarter, Verizon said it added 640,000 net retail postpaid wireless subscribers, a 13% increase from the prior-year period. It lost only 8,000 postpaid phone customers in the quarter, a significant improvement from the past two years in which it lost nearly 140,000 in the first quarter.

The improvement in phone subscriber losses is partly because customers are hanging onto their phones longer. Phones have gotten better, and there are fewer improvements in the latest models. Also, carriers now require customers to pay full price for their phones in installments, meaning the longer consumers hang onto their phones, the more they save.

Fewer upgrades mean people are switching less between carriers. Postpaid churn, or the rate at which customers canceled service, fell to 0.96%, a year-over-year improvement of 7 basis points.

Many of the customers leaving Verizon are tablet customers, said Fran Shammo, Verizon's chief financial officer. In the past, Verizon gave customers free tablets when they signed up for data plans. Mr. Shammo said those customers were canceling their contracts after their two-year obligation had ended.

Mr. Shammo said Verizon was still offering promotions on tablets, but no longer giving them away for free. "Even if they pay 50 bucks for the tablet, they value it a lot more than when it's free," he said. "When the customer pays for the tablet they actually stay on for longer than the two year contract."

Overall, Verizon reported a profit of $4.31 billion, up from $4.22 billion.

Growth at its Fios TV and high-speed Internet business continued to slow. Verizon added a net 98,000 Internet customers in the quarter, down sequentially and a 26% drop from the year-before period. It added 36,000 video customers, representing a 60% slide from the prior-year period.

Write to Ryan Knutson at ryan.knutson@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

April 21, 2016 13:45 ET (17:45 GMT)

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