Verizon Is Transforming Itself Into an IoT and Media Company

Verizon is leveraging its wireless network into new service offerings. Coverage map. Image source: Verizon.

Verizon Communications (VZ 1.53%) has been on a spending spree this year. Although the $4.8 billion Yahoo! deal captured the spotlight over the summer, after the $4.4 billion purchase of AOL the previous summer, Verizon has quietly brought its buyout count up to 10 for 2016.

On the surface, the targeted companies seem unrelated. However, the additions are helping Verizon build out a media and IoT business add-on to its wireless telecom bread and butter.

What Verizon is purchasing

Verizon has shelled out at least $11.5 billion this year. Here's what the busy telecom giant has been up to in the way of acquisitions:

Data source: Crunchbase.

The XO Communications purchase helps Verizon solidify its lead in the telecom space and is still pending regulatory approval. Other than that item, the general theme in the past year and a half for Verizon -- stretching back to include the AOL purchase -- has been to buy companies outside its main line of business.

Specifically, the acquisitions have centered on two areas: multimedia and Internet of Things companies. Verizon is combining the Telogis and Fleetmatics companies into its Telematics business, a service that already provided consumer vehicle infotainment and connection services. That division is seen boosting the company's presence in the connected-vehicle area.

The Sensity Systems, LQD WiFi, and XO Communications purchases help the company leverage its already sprawling voice and data network into an IoT network. The smaller companies help Verizon build out a "smart city" service division, and the larger XO deal helps with high-speed coverage and is seen as a means for ramping up to a faster, more reliable 5G mobile network.

Finally, a media and entertainment outlet is at the heart of the biggest purchases the company has made in the recent past. Last summer's AOL buyout will be combined with the more recent Yahoo! purchase, once that is finalized. Volicon, Complex, and Vessel are all being added to what will one day become Verizon's multimedia division.

Creating a new source of growth

The U.S. wireless leader has been in a slow process of transition from a telecommunications-heavy company to a business that has a hand in multiple outlets. Why? In the past couple of years, growth in the top and bottom lines from telecommunications has sputtered.

VZ Revenue (TTM) data by YCharts

While battling it out with other wireless providers over market share will continue to be a priority, Verizon is also moving on and buying up new sources of growth. With connected devices becoming a rule rather than an exception, Verizon sees benefit in moving beyond just smartphones, leveraging its already extensive network to encompass connected "things" in general.

Americans also continue to trend toward online and mobile consumption of media. Again, Verizon clearly sees opportunity in leveraging its leadership as a data-service provider into an actual provider of the digital content itself.

What investors should consider

During last quarter's conference call, Verizon reported 10% revenue growth from AOL and 24% revenue growth from its various IoT services. Both segments are still very small when considering the nearly $128 billion in revenue generated in the past 12 months.

However, with the new purchases still to be completed and most of them still not being reported on financial statements, it will be worth noting how they add to segment revenue growth in subsequent quarters. The wireless telecom race may have run its course, but investors have new areas of opportunity to cheer on going forward.