The market didn't like what it heard from Verizon (VZ 0.90%) when the company reported second-quarter 2022 earnings last week, and for good reason. The company isn't growing; it is losing customers to competitors like AT&T (T 1.10%), and cost pressures are piling up.
On the surface, conditions look terrible for Verizon, which is losing market share to the competition. But there's one bright spot that I think needs more attention from investors looking for value and dividend growth.
Image source: Getty Images.
Verizon's quarter
Revenue in the second quarter dropped 3% to $27.1 billion, and net income fell 10.7% to $5.3 billion, or $1.24 per share. What was a little shocking was Verizon adding only 12,000 postpaid phone customers after AT&T said it added 813,000 subscribers of the same category in the same quarter.
Verizon also lowered guidance slightly, setting the target for total services and other revenue growth at flat to down 1% for the year. AT&T, on the other hand, increased wireless service revenue guidance by more than half to 4.5%-5% growth.
The big negative for Verizon was the value market, where it's never had a big presence. After acquiring the value-minded Tracfone brand in 2021, the company lost 229,000 prepaid customers, including 227,000 at Tracfone, in this quarter. Management said some of these losses were expected as the company pushes customers over to postpaid products, but that's actually one reason why the postpaid figures were so alarming.
The bright spot
It appears the consumer segment is particularly weak for Verizon right now. But broadband is growing like crazy. In the quarter, Big Red added 268,000 broadband. 256,000 of these additions subscribed to fixed wireless. This service leverages Verizon's 5G network to offer broadband services in the home, replacing cable or fiber optic service.
Long-term, I think fixed wireless is going to be a growth driver for Verizon, and that momentum is just getting started. Fixed broadband was only rolled out to the consumer market on a nationwide basis earlier this year and it increased additions from 78,000 in the fourth quarter of 2021 to more than triple that in the last quarter.
If broadband continues to grow, we could see Verizon become a viable bundle company with phone, broadband, and streaming services under one roof. It has already done this on a small scale, but I think this could be the bundle of the future and make Verizon's business very sticky.
A deep value stock
If, like me, you see value in wireless broadband in homes long-term, Verizon is an attractive value. Management's updated guidance of adjusted earnings per share of $5.10 to $5.25 put the company's 2022 price-to-earnings ratio at 8.7 at worst. And the dividend yield of 5.8% makes this a great value stock for investors over the long haul.
