It is an extremely busy day for the newly formed telecommunications giant Verizon. The company reported second-quarter earnings, gave its forecast profits for the next two years, and also announced it is taking a controlling interest in high-speed Internet service provider Northpoint. All this is happening when roughly a third of the company's employees remain on strike.
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While the second quarter's numbers are important, what Wall Street seems to be really keying on is the company's guidance for the future. Verizon said that it is expecting revenue growth of 8% to 10% for the year 2000 with expected earnings in the $2.90 to $2.94 range. This compares to an average estimate of about $3.21.
For years beyond 2000, Verizon is expecting profit growth between 9.5% and 11.5% for 2001 and at least 12% for 2002. Taking the middle range numbers for 2001 would mean the company should earn roughly $3.23 per share in 2001, below the $3.52 estimate before today. In addition, some of the company's acquisitions that are in the pipeline will dilute these earnings a bit more.
The fact that Verizon undershot its second-quarter expectations and will also miss estimates for the next few years is the reason the Verizon's stock is down today. At this writing, the shares are down over 13% today, hitting the lowest point in the new company's history.
In other news surrounding the company, Verizon announced this morning that it would be buying a controlling stake in Northpoint Communications (Nasdaq: NPNT), a provider of high-speed DSL Internet services. For roughly $800 million in cash, Verizon will acquire a 55% stake in Northpoint and will also merge its own DSL business with Northpoint's. Northpoint shareholders will receive $350 million in cash, about $2.50 per share, and will also receive one share in the "new" Northpoint for each Northpoint share they currently own.
The deal is an interesting one because it creates a major force in the consumer broadband market. Verizon already has over 250,000 DSL subscribers, at least 30,000 of which were added in the last five weeks alone. The merged DSL firm is expected to have some 600,000 subscribers by the end of the year, easily making it one of the largest DSL service providers in the nation, just like mergers made Verizon the major force in the three major voice markets -- local, long distance, and wireless. The merger will also give Verizon a DSL footprint outside its core Northeastern markets.
Initial reports also indicate that the new Verizon is racking up impressive numbers in its other businesses. The company already has over 1 million long-distance customers in New York, 125,000 of which were added since the end of the second quarter. These customers are notable because they can receive their local and long distance services from the same company, indicating the attractiveness of so-called "bundled" services.
Verizon Wireless is also adding customers at a prodigious clip. At the end of the second quarter it had 25.6 million customers, having added some 800,000 during the quarter. Verizon Wireless remains the nation's largest wireless carrier, well ahead of the next largest wireless firms, AT&T Wireless (Nasdaq: AWE) and SBC Communications (Nasdaq: SBC).
All this news was dumped on Wall Street at the same time that roughly a third of the company's workers remain on strike for a third day. There's really no word concerning exactly when Verizon's line workers and operators will be back on the job, but Verizon's problems with its union workers is not something that will likely go away anytime soon. The strike certainly does provide an interesting backdrop for all of today's news.
All together, Verizon is trading at roughly 13-times next year's earnings. If the company can solve the short-term problems related to the strike and continue to keep its core businesses growing, Verizon is probably worth a closer look at these prices.
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