Verizon Logs $30.5B in Q2 2016 Revenue, Lower Than Analyst Estimates

In addition, the company's net income of $702 million is down 83.4 percent from a year ago, due to charges for pensions, benefits and more.

Verizon, revenue, Q2 2016, earnings, mobile carriers, smartphones, Yahoo, acquisition

Verizon brought in $30.5 billion in revenue in the second quarter of 2016, which is down 5.3 percent from the $32.2 billion the company brought in the same quarter one year ago. The company also reported a GAAP net income attributable to Verizon of $702 million, which is down 83.4 percent from the $4.2 billion posted one year ago due to charges for pension and benefits as well as early debt redemption costs.

Verizon announced its Q2 2016 results on July 26, just a day after the company announced that it is acquiring Yahoo's internet business for $4.8 billion as it works to expand its content and audience.

A survey of 21 analysts by Thomson Reuters had expected Q2 revenue of $30.94 billion from the company.

GAAP earnings per share came in at 17 cents per share, which is down from $1.04 per share in the same quarter in 2015. Non-GAAP earnings per share were 94 cents per share, before non-operational charges for pensions, benefits and early debt redemption.

The company said its financial results were also negatively impacted by about 7 cents per share in second-quarter 2016 by a seven-week strike by wireline employees earlier this spring.

Verizon added about 615,000 retail postpaid mobile customers in the quarter, giving the company a total of 107.8 million retail postpaid customers overall. Together with its 5.4 million retail prepaid mobile customers, the company claims 113 million customers. That's up 3.3 percent from a year ago when the company had 109.5 million customers. Verizon reported a 0.94 percent churn rate for the quarter for retail postpaid customers, which is up slightly from a rate of 0.90 percent one year ago.

"Verizon's second quarter shows that the company continues to deliver strong results while evolving operations and advancing a strategy to sustain network leadership, build new ecosystems and deliver the promise of the digital world to customers," Verizon Chairman and CEO Lowell McAdam said in a statement. "By acquiring Yahoo, we are scaling up to be a major competitor in mobile media. Yahoo is a complementary business to AOL [which Verizon acquired in May 2015], giving us market-leading content brands and a valuable portfolio of online properties and mobile applications that attract over 1 billion monthly active consumer views."

McAdam said the transaction, which is expected to close in the first quarter of 2017, is expected to put the company "in a great position as a top global mobile media company and give us a significant source of revenue growth for the future."

Verizon's wireless unit brought in operating revenue of $21.7 billion in the quarter, which was down 4 percent from the $22.6 billion it brought in one year ago. The division's Q2 2016 operating income was $8 billion, up 4.2 percent from $7.7 billion a year ago. The company said the drop is attributed to more customers choosing unsubsidized device payment plans.

The company said it added 462,000 4G smartphones to its postpaid base in Q2 and that its Fios television revenue grew by 3.7 percent to $2.8 billion, up from $2.7 billion a year ago. New revenue streams from internet of things (IoT) products continued to grow in the quarter, bringing in revenue of about $205 million in Q2, which is up 25 percent from the same quarter in 2015.

Jack E. Gold, principal analyst with J. Gold Associates, told eWEEK that Verizon's Q2 earnings report also showed the company's average revenue per user (ARPU) dropping by about 5 percent from a year ago, which "reflects the fact that more users are getting smarter at avoiding overage fees and sometimes switching to lower cost plans."

To increase its revenue in the future in a U.S. market that is reaching saturation, Verizon will have to work to increase ARPU by adding other services such as tablets and IoT devices. "And since T-Mobile and now Sprint have been driving home a 'lower cost' message, Verizon doesn't have as much flexibility in pricing as before."

The drop in Verizon's Fios users "likely reflects an increasing trend of many to cut the cable ties to TV, and to get premium services via alternatives such as Hulu," he added. "So Verizon needs to find a way to increase ARPU, and that is why it is looking at additional sticky services like AOL and now Yahoo. But so far they haven't found the magic bullet."

Another analyst, Rob Enderle, principal of Enderle Group, said he's not sure Verizon is making the right move by acquiring Yahoo's internet operations. "The mixing of content and technology has rarely ended well largely because of the conflicts between the two businesses," he said. "Overall [the company had] a very strong quarter with weaknesses associated more with market changes than unique Verizon problems."

In May 2015, Verizon bolstered its content and online advertising capabilities by acquiring AOL for $4.4 billion, according to an earlier eWEEK report. The acquisition, which had been rumored for months, brought together the largest U.S. mobile carrier and the AOL video and print content network, including the AOL Huffington Post Media Group.