Verizon Offers a Cautious 2022 Outlook

Verizon’s VZ first-quarter results were fairly typical, but management added a layer of uncertainty, indicating that consumer wireless growth slowed in March—weakness that has continued into April—and moderating 2022 expectations based on inflation and general economic conditions. This commentary stands in contrast with AT&T, which struck a more optimistic tone concerning itself and the industry on April 21. While Verizon claims it hasn’t seen signs of wireless share changes, the firm has been willing to accept modest share losses in recent years. As it has in the past, we suspect Verizon will continue balancing its promotional efforts to maintain modest customer growth while also aiming to limit competitive intensity. We don’t believe Verizon’s 2022 outlook has much bearing on its longer-term future. Our fair value estimate remains $59, leaving the shares modestly undervalued.

As it has during each first quarter of the past nine years, Verizon lost net postpaid phone customers, but the loss this year (36,000) was the smallest since 2018. Strong growth among business customers largely offset consumer weakness, a trade Verizon likely doesn’t mind making. Consumer revenue per account was modestly disappointing, increasing 2.6% versus a year ago but only holding flat sequentially. Wireless service revenue increased 9.5% versus a year ago, including revenue from Tracfone. Fixed-wireless broadband customer growth was also very strong, with 194,000 net additions during the quarter, though revenue from the service remains small.

Total service revenue declined 2.5%, reflecting the sale of the media business. Management had expected to grow this revenue line 1.0%-1.5% in 2022 despite the media sale but now expects it to hold flat. Management called out fixed-line sales weakness and lower universal service fees, not wireless, as the primary drivers of the change. Both Verizon and AT&T reported very weak enterprise and government fixed-line revenue during the quarter.

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