Why Verizon Communications Shares Lost 9% in July

What happened

Shares of Verizon Communications (NYSE: VZ) fell 9% in July 2022, according to data from S&P Global Market Intelligence. In contrast, the S&P 500 The market index rose 9.1% over the same period, leaving Verizon investors far behind.

And then

Most of Verizon’s market pain last month stemmed from a disappointing second-quarter report. Big Red lagged slightly behind Wall Street’s earnings estimates, while meeting revenue expectations with a completely flat year-over-year comparison.

In fact, Verizon’s subscriber numbers didn’t impress anyone. The company added just 12,000 postpaid wireless subscribers in the second quarter, along with 36,000 net new Fios internet customers. By comparison, in the same period last year, the telecom added 878,000 postpaid wireless customers and 92,000 Fios accounts.

What now

Verizon’s slow subscriber growth was the result of weak consumer demand for cordless phones and high-speed data services. This is an ongoing trend that Verizon management has referenced in the last three earnings reports, but it has not found a successful antidote to this core problem. And that’s not the whole story.

“The inflationary environment is clearly impacting consumer behaviour, and we also saw intensified competition for consumer attention,” CEO Hans Vestberg said during the earnings call. In other words, in addition to the inflation-based market challenge, Verizon is losing subscribers to the competition.

Verizon’s knee-jerk response to weak subscriber additions has been to raise consumer prices — a move that isn’t particularly effective when it comes to finding new customers. This trend reminds me of the movie industry, where theaters and studios have been fighting for lower ticket sales with higher prices for the past few decades. It should come as no surprise if these price increases fail to trigger a passionate surge in customer growth. The telecom market is very similar to Hollywood.

All of which is to say that I’m not surprised that subscribers are staying away from Verizon’s soaring prices. The company is trying less expensive promotions, but it’s the long-term costs that need adjusting here. Remember, Verizon is a hyper-efficient ATM, generating $17.7 billion in operating cash flows in the first half of 2022. The telecom company can easily afford to slow down its cash-earnings roll for a while if it wants to return to subscriber growth. I think that’s 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 cheaper sales strategy here.

10 Stocks We Like More Than Verizon Communications
When our award-winning team of analysts has a stock tip, it can pay to listen. The newsletter they have had for over ten years, Motley Fool Stock Advisorhas tripled the market.*

They just revealed what they believe are the top ten stocks investors can buy right now… and Verizon Communications wasn’t one of them! That’s right – they think these 10 stocks are even better bargains.

View the 10 stocks

*Stock Advisor returns from July 27, 2022

Anders Bylund has no position in any of the listed stocks. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Leave a Reply