Verizon Just Reported Earnings. Here Are The Numbers You Need to Know.

Verizon Communications reported stronger-than-expected fourth-quarter earnings on Tuesday morning, and added profit guidance for 2021 above Wall Street consensus. Despite a pandemic and major disruption to its customers’ lives that weighed on Verizon’s revenue in 2020, the communications giant managed to grow its earnings and subscriber base in the past year.

Fourth-quarter revenue and subscriber growth both fell below analysts’ expectations, however, sending Verizon (ticker: VZ) stock falling. And investor concerns about Verizon’s wireless spectrum holdings will remain a hot topic until the final results of the C-Band auction are known. That could keep a lid on shares in the near term, despite management’s optimistic outlook.

Verizon stock was down 2.5% to $56.98 in Tuesday morning trading.

Verizon earned $1.21 per share in the fourth quarter after adjusting for pension and severance charges, and other one-time items. That compares with the analyst consensus estimate for EPS of $1.17, and $1.13 a year ago. It’s also slightly higher than Verizon management’s guidance for the last three months of the year, which was offered with its third-quarter-earnings report in October. Unadjusted earnings were $1.11 per share.

Revenue was $34.7 billion in the fourth quarter, about equal to the same period in 2019. Analysts had been expecting $34.5 billion. Verizon also reported $11.7 billion in adjusted earnings before interest, taxes, depreciation, and amortization, or Ebitda. That’s up about 5% from a year ago and slightly higher than Wall Street’s forecast. Consumer segment results were generally soft, but Verizon’s Business unit made up the shortfall. And Verizon Media—which includes Yahoo, TechCrunch, AOL, and other online brands—reported a year-over-year increase in revenue for the first time in years.

For all of 2020, Verizon had $4.90 in adjusted EPS, $128.3 billion in sales, and $23.6 billion in free cash flow. Those were up 2%, down 3%, and up 32%, respectively, from 2019. The steady results underline the defensive nature of Verizon’s business: even during a pandemic marked by lockdowns and a deep recession, people are loath to cancel their phone plans and home internet service.

Management also offered guidance for 2021 on Tuesday, calling for revenue growth of at least 2%—including 3% wireless-service growth—and adjusted EPS in the $5.00-to-$5.15 range, or up 2% to 5%. Wall Street wasn’t expecting to see much EPS growth from Verizon in 2021—the consensus forecast was for $4.93.

Verizon also expects to spend around $18 billion in capital expenditures this year, about equal to its 2020 investment but less than analysts had expected.

Verizon had a worse-than-expected quarter on the subscriber front, as Verizon and its rivals AT&T (T) and T-Mobile US (TMUS) flooded the market with promotions before the holidays, many tied to Apple’s (AAPL) new 5G-enabled smartphone lineup. Verizon CEO Hans Vestberg had made an appearance at the iPhone 12 virtual unveiling event in October. Those discounts weighed on the company’s profit margin last quarter, with adjusted Ebitda coming in at 33.8% of revenues. That figure was closer to 38% in the prior three quarters, but is slightly higher than the year-ago period.

Verizon signed up a net 703,000 wireless postpaid customers—meaning those who pay a monthly bill—versus the Wall Street consensus of 941,000. Postpaid-phone additions, which tend to be more valuable than other devices such as tablets or smartwatches, were 279,000—short of the 525,000 consensus estimate. Verizon also lost a net 50,000 prepaid customers last quarter.

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Chief Financial Officer Matt Ellis said that Verizon was pleased with the quality of the customers it was signing up, with 90% of new accounts coming in on higher-revenue unlimited data plans. More than 60% of Verizon’s total customer base is on unlimited plans, Ellis said Tuesday. Those are the only option to get 5G access for now, and are a key part of Verizon’s plans to monetize the new technology—by nudging new and existing customers to higher-price plans.

“I certainly like adding new customers onto the network,” Ellis tells Barron’s. “But our plans are also designed to bring customers on and then step them up…Our business model is really based on improving revenue through both.”

Ellis said that more than 50% of phones Verizon sold in the fourth quarter were 5G-capable handsets, and that it saw more upgrade activity in areas where its 5G network was up and running. As Verizon’s 5G footprint expands, that should be a driver for more customers stepping up to higher-tier plans, Ellis said.

Verizon’s priorities for 2021 include continuing its 5G network build and completing a four-year cost-cutting program that aims to reach $10 billion in annual savings next year. Verizon likely has a bill coming up in the tens of billions of dollars for a collection of wireless spectrum licenses—in the so-called C-Band, which includes coveted frequencies most useful for 5G networks. Until it has that spectrum cleared and up and running on its network, Verizon’s 5G experience will be strongest in dense urban areas where it has deployed small cells, but lack the full benefits of 5G in many suburban and rural areas.

“Our work on the relative spectrum positions of the carriers shows that Verizon will be in an uncomfortable position for the next 24 months at least, with a network that is inferior to T-Mobile’s and pricing that is 20% above,” wrote New Street analyst Jonathan Chaplin on Tuesday morning. “Verizon will have to work hard to hang onto subscriber share and their premium brand position while they navigate this period.”

Chaplin has a Neutral rating on Verizon stock and a $54 price target. Analysts overall are lukewarm on Verizon stock, with 61% recommending a Hold or equivalent rating and 31% recommending a Buy, according to FactSet. One analyst rates Verizon at Sell. Their average target price is $61.40, about 5% above the stock’s $58.42 closing price on Monday.

Verizon stock also sports a 4.3% annual dividend yield. It has returned 1.2% over the past year, versus a 19% return for the S&P 500 and 9% for the Dow Jones Industrial Average.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com