shares Verizon Communications (NYSE: VZ) It fell 9% in July 2022, according to data from S&P Global Market Intelligence. By contrast, the Standard & Poor’s 500 The market index is up 9.1% in the same period, leaving Verizon investors far behind.
The bulk of Verizon’s market pain last month stemmed from its disappointing second-quarter report. Big Red slipped slightly from Wall Street’s earnings estimates while meeting revenue expectations with a completely flat annual comparison.
What’s more, Verizon’s subscriber addition numbers haven’t impressed anyone. The company added just 12,000 subscribers to its postpaid wireless service in the second quarter, along with 36,000 new internet customers for Fios. By comparison, Telecom added 878,000 postpaid wireless customers and 92,000 Fios accounts in the same period last year.
Verizon’s slow subscriber growth was the result of weak consumer demand for wireless phones and high-speed data services. This is an ongoing trend that Verizon management has pointed to in its last three earnings reports, but it hasn’t found a successful antidote to this underlying problem. This is not the full story.
“It’s clear that the inflationary environment is affecting consumer behavior, and we’ve also seen intense competition for consumer attention,” CEO Hans Vestberg said on the earnings call. In other words, on top of the inflation-based market challenge, Verizon is losing out on the competition.
Verizon’s quick reaction to poor subscriber additions has been to raise consumer prices — a particularly ineffective move when it comes to finding new customers. This trend reminds me of the film industry, where theaters and studios have been battling declining ticket sales with rising prices for the past two decades. It should come as no surprise when these price increases fail to ignite a rush of customer growth. In this way, the telecom market is very similar to Hollywood.
All of this means I’m not surprised to see subscribers walk away from Verizon’s increased pricing. The company is trying to offer less expensive promotions, but the long-term costs have to be adjusted here. Don’t forget that Verizon is a highly efficient cash machine, generating $17.7 billion in operating cash flow in the first half of 2022. The carrier could easily slow down its cash dividend for a while if it wanted to return to strong subscriber growth. I think this is a good idea.
Until that happens, I’m not a Verizon buyer. Let’s just say I’m not holding my breath while waiting for a low price sales strategy here.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. Motley Fool has a disclosure policy.
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