Revenue falls 5.3%, the first quarterly decline since 2010
By Ryan Knutson
Verizon Communications Inc. reported its first decline in
quarterly revenue in six years amid sluggish subscriber growth,
underscoring why the nation's biggest wireless carrier is seeking
new sources of revenue through acquisitions like Yahoo Inc.
Revenue fell 5.3% from a year ago, its first drop since 2010
after three quarters of declining growth. Excluding recent landline
divestitures and AOL, revenue would have decreased 3.5% from a year
ago. Meanwhile, Verizon's net additions of retail postpaid
subscribers -- its most valuable customers -- were down 46% in the
quarter.
The slowdown in its wireless business underpins Verizon's push
to develop new sources of revenue like digital advertising and
connected cars. The strategy drove its $4.83 billion planned
acquisition of Yahoo, announced Monday, the biggest addition to the
carrier's burgeoning media business which Verizon projects will
have $20 billion of revenue by 2020.
"Yahoo brings viewers. Viewers bring advertising. Advertising
brings top line growth," said Verizon Chief Financial Officer Fran
Shammo in a call with investors, the first time Verizon executives
have spoken publicly about the deal, which is expected to close in
the first quarter.
CEO Lowell McAdam said the carrier plans to take on Facebook
Inc. and Alphabet Inc.'s Google as it expands into the
digital-media industry, which he estimated could be as large as
$180 billion by 2020. "Verizon intends to be a significant player
in this space," Mr. McAdam said on the conference call.
Verizon's thesis is that content creators and advertisers are
hungry for alternatives beyond Facebook and Google as the market
for digital media expands for both in-home and mobile consumption.
This year, Google collected an estimated 31% of digital-ad revenue
globally and Facebook had 12%, according to eMarketer. Yahoo and
AOL combined have about 2.2%.
"The big advertisers have come to us saying that they have more
ads to place than they have good places to put them," Mr. McAdam
said. "We will be one of the few that can deliver advertising and
content across the home, across the mobile device, and across the
internet."
Mr. McAdam also said he recently spoke with National Football
League Commissioner Roger Goodell and National Basketball
Association Commissioner Adam Silver about ways to expand sports
content, including games, on Verizon's online and mobile
properties, such as its mobile video app go90. Mr. McAdam said the
carrier is also in talks with broadcast networks about how their
sports channels could also be streamed over AOL, Yahoo or go90.
Verizon said traditional 300-channel TV bundles are beginning to
fray, and more media consumption is moving to smartphones,
especially among millennials. Mr. McAdam pointed to how some of its
recent investments, such as those in Complex magazine and
AwesomenessTV, will help it ride that wave.
Investing in mobile media will also allow Verizon to draw
revenue from a less capital intensive business, Mr. McAdam said,
and one that doesn't have to deal with a labor union. Verizon spent
$7.3 billion in capital expenditures on its networks in the first
six months of they year, and had to manage a 45-day labor
strike.
Still, Mr. McAdam said his goal is for the carrier's media
business to grow faster than the overall market. "We're a small
player today" relative to Google and Facebook, he said. "All we
need to do is take more than our fair share of the growth of the
market and this will be a success for us."
For the period, Verizon added 615,000 net retail postpaid
wireless subscribers, while revenue fell to $30.53 billion.
Wireless service revenue has been under pressure as customers
migrate to new phone plans that encourage customers to upgrade less
often, but that pressure is easing, the company said. Its landline
internet and TV business, called Fios, also lost customers, partly
due to the wireline strike.
Earnings, meanwhile, took a major hit from one-time
remeasurements to Verizon's pension and postretirement benefits as
well as higher costs incurred during the strike. In all, Verizon
reported a profit of $702 million, down from $4.23 billion a year
earlier.
Shares of Verizon were down 2% to $54.76.
In recent years, Verizon has offered heavy discounts on tablets,
helping to boost subscriber metrics. This quarter, more than
350,000 of its net additions were tablets, and only 86,000 were
phones.
The tablet subscribers have the benefit of seeding Verizon's
customer base with a larger screen where they can more comfortably
watch its new online content, Mr. Shammo said. About 11% of
Verizon's 113 million retail customers have tablets, he said.
"With go90, AOL, Yahoo coming into the portfolio fold, we are
trying to drive more usage into these devices, and we want those
users to consume content, which then ultimately drives
advertising," Mr. Shammo said.
Write to Ryan Knutson at ryan.knutson@wsj.com
(END) Dow Jones Newswires
July 27, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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