Please ensure Javascript is enabled for purposes of website accessibility

Verizon's Next-Gen Services Are Poised for Growth

By Nicholas Rossolillo - Aug 6, 2018 at 7:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

America’s largest wireless network could get a lot less boring very soon.

Shares of Verizon (VZ 0.80%) were up after the company reported solid results for the second quarter of 2018. Revenue increased 5.4% to $32.2 billion from new subscriber additions -- offsetting sluggish performance from the FiOS video and Oath digital content segments -- and adjusted earnings were up 25%. Debt also got reduced by $4.4 billion from the last quarter, making the thesis to own Verizon for its dividend even stronger.

For investors looking for a little more than just income, Verizon may soon be able to offer that, too. Several new initiatives are coming together that could transform the function of wireless telecommunications networks.

Nurturing new growth

For FiOS Internet, a net 43,000 customer additions were reported as consumers increasingly rely on high-speed and high-quality internet at home. That helped offset weakness in FiOS Video, where 37,000 customer connections were lost in the quarter. The migration away from cable TV to streaming services continues to weigh on that segment. Simply put, the internet is eating cable TV's lunch, so Verizon's FiOS division is treading water as consumers trade out their cable connection for a better internet experience. 

The company's Internet of Things (IoT) business -- which includes services for smart cities, connected fleets and autos, and mobile commerce -- was up 13% from the same period a year ago. Within IoT is Verizon Connect' enterprise software for fleet tracking, management, and compliance. Revenue within this subcategory was $241 million compared with $220 million a year ago.

The IoT and Verizon Connect businesses are small and relatively insignificant compared with the $32.2 billion total the whole company brought in last quarter. That could be about to change, though.

An artist's rendition of the internet of things. Devices like cars, cameras, and microscopes are illustrated in cells connected to the internet.

Image source: Getty Images.

5G and what it means

Verizon is leading the way in its deployment of the next-generation 5G wireless network. 5G is much faster and has lower latency (the amount of time for data to travel across a network) than any other wireless network before it. Because of 5G's potential, it could help unify Verizon's small, albeit fast-growing, segments with its bread-and-butter wireless business. 5G puts the telecom giant in position to directly compete with traditional internet service providers and could help accelerate business adoption of the IoT.

Retiring CEO Lowell McAdam recently had this to say about the company's network plans: "This leadership position is attracting opportunities in areas such as over-the-top TV, smart cities, transportation, education, and healthcare, just to name a few. I believe the impact of 5G on consumers will be much bigger than any previous generation, but the biggest impact will be on businesses as we provide the platform for the fourth industrial revolution."

5G will be deployed initially in four major cities by year-end, with Houston being the latest announced market after Sacramento and Los Angeles. The fourth market has not yet been announced, but other cities are trying to get on board with the movement, too.  For example, Verizon recently announced it will work with the San Jose, CA to improve connected infrastructure for traffic management and other connected services and the future deployment of 5G.

All of this means that Verizon's stable-but-stagnant wireless business is undergoing an overhaul, one that puts America's largest network at the forefront of better internet and a movement to connect more devices. This sleepy stock has the potential to get a lot more exciting as a result.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$51.40 (0.80%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.