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Verizon Q4 Earnings Up As It Completes "Transformational" Year

By Daniel B. Kline - Jan 21, 2016 at 4:18PM

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The company has invested heavily in its network and in adding programming/content.

Verizon (VZ 0.83%) topped its earnings estimate slightly, capping a year the company called "transformational" for its business.

The wireless, Internet, phone, and cable provider posted fourth quarter earnings per share of $0.89, a slight beat over consensus analyst predictions of $0.89 and an improvement over the $0.71 delivered in Q4, 2014. Revenue for the quarter -- which was driven by promotions designed to keep customers from leaving -- came in at $34.25 billion, up from $33.19 billion for the same period a year ago.

For the full year, on an adjusted basis (non-GAAP), Verizon reported $3.99 in EPS in 2015, an increase of 19.1% compared with $3.35 in adjusted EPS in 2014.

"In 2015, Verizon delivered strong and balanced results in a dynamic competitive environment while returning more than $13.5 billion to shareholders," CEO Lowell McAdam said in the earnings release. "At the same time, Verizon built and acquired next-generation network capabilities that position the company to be an innovator in the digital-first mobile world in 2016 and beyond."

It was a year of big spending
During the past year Verizon's "transformation" involved spending approximately $28 billion in spectrum licenses and capital for future network capacity. That's a very important investment because Verizon -- which added 1.5 million retail postpaid net additions in Q4 and 4.5 million in 2015 -- faced intense pressure from T-Mobile (TMUS 1.98%). To fend off its lower-priced, overage-free rival, Verizon pushed the quality of its network in many of its commercials using the phrase "better matters."

All that spending did let the company maintain its lead on the latest RootMetrics report which covered the first half of 2015. T-Mobile did cut into that lead and now scored better than Verizon did in the same report 12 months prior, but continuing to invest did help Verizon stay on top.

T-Mobile has been very aggressive in going after Verizon's claims. Source: John Legere's Twitter

In addition to improving its wireless network the company also invested heavily in becoming a content company. Verizon spent $4 billion to buy AOL in June and the company also launched go90, a mobile-first social entertainment platform.

The goal of adding AOL and go90 is to ultimately given Verizon an added revenue stream from advertising. go90 specifically is designed to increase engagement (and data consumption) for its wireless customers.

In Q4 and for the full year the company also continued to grow its Internet of Things business. The company reported revenues of approximately $200 million in fourth-quarter 2015 and about $690 million for the full year, a year-over-year increase of 18%.

Will the transformation work?
While Verizon wants to highlight its "transformation" into a company that's not entirely dependent upon subscriber dollars, it has yet to prove that will happen. AOL has had mixed results in recent years and go90 is an expensive investment which at best could be called risky.

Verizon deserves credit for holding onto its wireless audience and even adding subscribers in the face of aggressive competition from T-Mobile. The company should also be saluted for adding 99,000 net new Fios Internet connections and 20,000 net new Fios video connections in the fourth-quarter 2015. That gives Verizon 7 million for Internet and 5.8 million for pay-television subscribers at the end of 2015, representing year-over-year increases of 6.3% and 3.2%, respectively.

The pay TV number is especially impressive given that cord cutting caused the overall market to lose around 650,000 customers through the first three quarters of 2016. Verizon has weathered the storm well and delivered impressive results, but it has only laid the framework for its transformation, not proven that it will work. But, even if go90 fails and AOL continues to stumble, these numbers suggest Verizon is well set up for the long-term changes impacting the industries it operates in.

Daniel Kline has no position in any stocks mentioned. He fully expects go90 to fail. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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