What's Wrong With Verizon Communications Inc. Today?

Verizon took the baton from AT&T and continued to run the Dow telecoms lower. Both stocks are down more than 3% this week, while the Dow has gained 0.8%.

Apr 24, 2014 at 2:00PM

On Wednesday, AT&T (NYSE:T) was the Dow Jones Industrial Average's (DJINDICES:^DJI) weakest performer. Gloomy guidance will do that, even if the telecom giant's reported earnings results looked fine.

Ma Bell's weakness also dragged down fellow Dow telecom Verizon Communications (NYSE:VZ), setting the stage for this morning's Verizon earnings. "It will either underscore or contradict what AT&T said today," I wrote yesterday. "Look for that report to get a clearer idea of where the American wireless industry is going."

The results are in, and Verizon turned out to reinforce the ugliest parts of AT&T's message. So today it's Verizon's turn to lead the Dow's list of biggest losers, trading 2.6% lower afternoon trading. That's worth about seven Dow points, holding the blue-chip index back on an otherwise fairly positive market day.

Big Red reported non-generally accepted accounting principles earnings of $0.84 per share on $30.8 billion in total sales. The top-line take just inched past analyst estimates, but earnings fell short of the Street's $0.87 per-share projection.


Image source: Verizon.

Looking ahead, management reiterated full-year 2014 revenue guidance at $125 billion, in line with current analyst views. You could chalk that up to Verizon knowing what it was talking about three months ago, when the first 2014 guidance figures came out, or you can do what Verizon investors are doing today -- namely, thinking that the company is running out of positive catalysts.

In many ways, Verizon is getting dragged into a new era of the wireless business, kicking and screaming. Like AT&T and smaller rival T-Mobile (NASDAQ:TMUS), Verizon introduced a rapid handset upgrade program late last year. It's a customer-friendly program, but these trade-ins may also put pressure on the telecoms' margins if they become popular.

On the analyst call this morning, Verizon CFO Fran Shammo didn't mince words about this trend when talking about the Edge upgrade program.

Vz Cfo Fran Shammo

Verizon CFO Fran Shammo addressed analysts and investors this morning. Image source: Verizon.

"Look, this is a customer choice, this not what I want," he said. But accepting lower margins for Edge customers keeps those subscribers from jumping ship. "It treats our customers the way they want to be treated and it is a retention tool for us. So it will help to deliver a lower churn metric in the future," Shammo said.

So far, less than 15% of Verizon's new subscribers have picked up the Edge option. That rate could double in the next quarter, according to Shammo.

Taken with AT&T's report, it's becoming fairly obvious that competitive pressures will do some damage to the big telecoms' margins over the next several quarters. If Verizon and AT&T want to hang on to their customers in the face of take-no-prisoners innovation from T-Mobile and others, they will have to do business in new ways -- often less profitable, and always uncomfortable to companies that were perfectly happy with the established status quo.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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