Bloomberg News

Verizon Profit Doubles on Smartphones; User Gains Fall Short

October 21, 2011

(Updates stock price in sixth paragraph.)

Oct. 21 (Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone company, reported third-quarter profit doubled as consumers snapped up iPhones and Android devices.

Net income rose to $1.38 billion, or 49 cents a share, from $659 million, or 23 cents, a year earlier, New York-based Verizon said today. Earnings, excluding some items, rose to 56 cents a share in the quarter ended Sept. 30. Analysts predicted 55 cents, the average of estimates compiled by Bloomberg.

The popularity of Android smartphones running on Verizon’s new higher-speed long-term evolution, or LTE, network helped give Verizon an edge on subscriber growth over rival AT&T Inc. Still, customer gains missed some analysts’ estimates as consumers waited for the latest version of the Apple Inc.’s iPhone, which became available this month.

“Subscribers dramatically slowed purchases of smartphones in September in anticipation of the new iPhone,” said John Hodulik, an analyst at UBS AG in New York.

Verizon Wireless, jointly owned by Verizon and Vodafone Group Plc, added 882,000 contract, or postpaid, subscribers in the quarter. The gain compared with the 584,000 new signups a year earlier and the 1.04 million average of six analysts’ estimates compiled by Bloomberg.

Verizon shares closed up 0.9 percent to $37.42 in New York. The stock has advanced 4.6 percent this year.

Gaining Share

Sales climbed 5.4 percent to $27.9 billion, matching the average analyst projection. Revenue at the wireless business jumped 9.1 percent to $17.7 billion, while sales the fixed-line unit declined 1.3 percent to $10.1 billion.

“Verizon continues to take postpaid market share from everyone,” said Chris King, an analyst at Stifel Nicolaus in Baltimore, who recommends buying Verizon shares. “They are ahead on LTE and this was the first full quarter when they sold LTE phones.”

Verizon is expanding its LTE network after starting the service in some markets last year. AT&T, which is starting limited LTE service this year, yesterday reported it gained 319,000 postpaid subscribers last quarter.

Of the 5.6 million smartphones Verizon sold in the quarter, 1.4 million were LTE devices. Smartphones, which allow consumers to browse the Web and watch video, helped push average monthly revenue per contract subscriber to $54.89, up 2.4 percent from a year earlier.

Strike Impact

Verizon sold 2 million iPhones in the quarter, compared with the 2.7 million AT&T activated in the period. Verizon gained access to the top-selling device this year, ending AT&T’s exclusivity for the handset.

Verizon said 20 percent of its iPhone customers came from other carriers, and 80 percent were existing customers upgrading. The company sold out of the new iPhone 4S on the first day of sales on Oct. 14 and has been on allocation from Apple since then, filling backorders.

The wireless growth helped Verizon offset some of the costs caused by storms and a strike by about 45,000 employees at its fixed-line business. The storms, including Hurricane Irene, combined with the strike cost it $250 million last quarter.

Verizon added 131,000 FiOS TV subscribers, more than the 118,000 analysts estimated. The company gained 20,000 broadband customers. Analysts projected a gain of 4,000 on average.

(The company had a conference call today to discuss the results. To listen to a replay, go to LIVE <GO>.)

--Editors: Ville Heiskanen, Peter Elstrom

To contact the reporters on this story: Scott Moritz at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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