Verizon Communications Inc.’s wireless promotions paid off in the latest quarter, helping to drive more 5G upgrades and continued low levels of subscriber churn.

Shares of Verizon
VZ,
+0.67%

gained 0.7% in Wednesday trading after the telecommunications company posted better-than-expected financial results and increased its outlook, with Verizon pointing to a “record high” number of new accounts that chose premium unlimited plans in the latest period.

In the consumer business, Verizon recorded retail postpaid phone churn of 0.65%, one of its lowest rates yet as a limited number of consumers switched wireless providers. Verizon also saw 350,000 retail postpaid net additions, including 197,000 phone net additions, and said that about 20% of wireless phone customers in the consumer segment are now using 5G phones.

Verizon stepped up its promotions during the June quarter in a move that seemed to resonate with consumers. “Device upgrades, which were significantly higher compared to both second-quarter 2020 and 2019, drove 5G adoption and step-ups to premium unlimited plans, a strong indicator that our strategy is working,” Chief Financial Officer Matthew Ellis said on Verizon’s earnings call.

At the same time, Chief Executive Hans Vestberg said the company was focused on “profitable growth.” Promotions may help attract new customers or prompt existing ones to upgrade, but they can also weigh on margins.

Information on Verizon’s site about a deal offering up to $700 off the iPhone 12 line when consumers trade in older devices indicates that the promotion is set to end July 21, leading Moffett Nathanson analyst Craig Moffett to wonder how “sustainable” Verizon’s strong subscriber trends are without such deals, especially as the competitive landscape evolves.

“Comcast
CMCSA,
+1.28%

slashed prices for multi-line family plans, undercutting Verizon at every size plan… for exactly the same network (Verizon’s),” he wrote in a note to clients. Comcast leverages Verizon’s network through its mobile virtual network operator (MVNO) model.

Charter Communications Inc.
CHTR,
-0.05%

could make a similar move, Moffett reasoned, and AT&T Inc.
T,
-0.04%

recently struck a long-term arrangement with Dish Network Corp.
DISH,
+2.35%

that will allow Dish to leverage AT&T’s network as it works on building out its own.

“By giving Dish a long-term MVNO agreement that allows for precisely the same kind of selective offload that Verizon’s deal gives cable, AT&T has given Dish a nearly assured path to becoming a serious long-term competitor,” wrote Moffett, who rates the stock at neutral. “And a long-term price cutter.”

Verizon generated net income in the second quarter of $5.95 billion, or $1.40 a share, compared with $4.84 billion, or $1.13 a share, a year earlier. On an adjusted basis, Verizon earned $1.37 a share, up from $1.18 a share a year prior and ahead of the FactSet consensus, which called for $1.30 a share.

The company’s operating revenue for the quarter rose to $33.76 billion from $30.45 billion, while analysts tracked by FactSet had been expecting $32.77 billion on average. Verizon saw $23.5 billion in consumer revenue, $7.8 billion in business revenue, and $2.1 billion in media revenue.

The telecommunications company now expects total wireless service revenue growth of 3.5% to 4.0% for the full fiscal year, whereas it was previously calling for growth of at least 3%. Verizon withdrew its prior expectation for service and other revenue growth as it recently announced plans to sell its Verizon Media business, with the deal expected to close in the third quarter.

Verizon now projects full-year adjusted earnings per share of $5.25 to $5.35, up from its prior expectation for $5.00 to $5.15. The company continues to expect 2021 capital spending of $17.5 billion to $18.5 billion.

Shares of Verizon have lost 3.8% over the past three months as the Dow Jones Industrial Average
DJIA,
+0.83%

has added 1.9%.



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