Big Telecoms Keep Investors on Hold -- Ahead of the Tape
January 23 2017 - 12:36PM
Dow Jones News
By Steven Russolillo
Bigger isn't necessarily better in telecom these days.
A saturated wireless market has hindered giants Verizon
Communications Inc. and AT&T Inc. even as competition from
smaller rivals exerts a drag on subscriber and revenue growth.
Meanwhile, efforts to diversify their businesses have yielded
varying degrees of success. The carriers' earnings reports this
week are unlikely to offer much encouragement.
Analysts forecast Verizon on Tuesday will report fourth-quarter
earnings of 89 cents a share, matching the year-ago figure. But the
carrier is expected to report a third consecutive drop in quarterly
revenue after six years of growth. Verizon's shares have fallen in
the trading session that followed six of its past eight earnings
reports.
On Wednesday, AT&T is expected to report that fourth-quarter
revenue slipped from a year ago.
Adding to the uncertainty for Verizon is its pending $4.8
billion acquisition of Yahoo Inc.'s web assets. The Wall Street
Journal reported U.S. authorities are investigating whether Yahoo's
two massive data breaches should have been reported sooner to
investors. It is unclear how the deal will proceed and whether
Verizon will try to renegotiate the terms or even walk away from
the pact.
Along with its acquisition of AOL Inc. in 2015, the Yahoo pact
may be instrumental in Verizon's quest to compete with Facebook
Inc. and Alphabet Inc.'s Google in digital advertising. By focusing
on short content geared toward mobile, Verizon is beefing up its
ownership and distribution of online content and using that data to
target advertising. Including the current price of the Yahoo deal,
Verizon will have spent about $10 billion on its content
strategy.
That pales in comparison to AT&T's diversification into the
more traditional TV and studio markets. It reached a still-pending
deal last year to buy Time Warner Inc. for $85 billion and in 2015
purchased DirecTV for nearly $50 billion.
But what Verizon and AT&T have in common is investors
haven't been too enamored with their share prices of late. Even
including their postelection bumps, both stock prices are still
down from this past summer. Furthermore, they have vastly lagged
behind the sharp gains from smaller rivals Sprint Corp. and
T-Mobile US Inc., which have been adding subscribers.
Verizon's and AT&T's valuations don't scream buy either. At
13 and 14 times projected earnings, respectively, both multiples
are roughly in line with their recent averages over the past
several years.
In this earnings season, don't be surprised if the big wireless
carriers keep investors on hold.
(END) Dow Jones Newswires
January 23, 2017 12:21 ET (17:21 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Verizon Communications (NYSE:VZ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Verizon Communications (NYSE:VZ)
Historical Stock Chart
From Apr 2023 to Apr 2024