Why is Verizon Stock (NYSE: VZ) Down Despite Earnings Growth?

Verizon stock (NYSE: VZ) was hit by an underwhelming earnings report, as despite upticks in performance, there were misses against consensus estimates across key metrics that are now weighing on sentiment. VZ stock ended the day down a little over 6% as the $250 million miss on revenue ($32.8bn vs expected $33.05bn) has been punished by markets.

The earnings for the second quarter of 2024 broadly reflect several positive trends and strategic initiatives positioning the company for future growth, but the reason for the dip is that analysts and markets were expecting more, and total revenues have declined slightly.

The wireless service giant saw its Wireless Service Revenue grow by 3.5% year over year to a robust $19.8 billion. Adjusted EBITDA also experienced a healthy uptick, rising by 2.8% compared to the same period last year, reaching $12.3 billion.

During the quarter, the impact of the Affordable Connectivity Program (ACP) was noticeable on Verizon's prepaid brand and Fios services. The company acknowledges the likelihood of some customer disconnects in prepaid offerings and other products as the third quarter commences. However, these are calculated adjustments within Verizon’s strategic framework.

With an eye toward expansion, Verizon aims to reach between 4 to 5 million fixed wireless access broadband customers. This growth will be fueled by extending its C-band reach into suburban and rural areas. The company plans to reassess opportunities after hitting this targeted customer base, indicative of its adaptive market strategy.

Verizon has been evaluating pricing opportunities to align with the customer value proposition, leading to beneficial pricing actions in the first half of the year that have supported service revenues. While further pricing actions are not being commented on at this time, Verizon's leadership indicates confidence in continuing to drive volume growth while maintaining pricing power over the next 12 months. This confidence stems from improvements seen in revenue and operational volumes in both postpaid and prepaid service segments in the previous quarter.

The company also announced a voluntary separation program targeting a segment of its workforce. Expected to bring about cost savings by the end of 2024 and into 2025, the move is anticipated to have an impact on EBITDA.

With the future in mind, Verizon acknowledges the increasing importance of delivering vertical solutions to its customers. The company believes it is well-positioned with its current assets in mobility and broadband and plans to continue innovating to meet customer demands amidst a potential market convergence.

The company expects strong free cash flow growth for the remainder of the year, with cash generation standing at $8.5 billion for the first half. This robust financial performance indicates the possibility of the company paying down debt in the latter half of 2024.

Verizon's outlook on the broadband market remains optimistic, with fixed wireless access capacity holding strong and about half of the traffic now on C-band. This ability signals more opportunities for deployment and market penetration.

For the second half of the year, Verizon anticipates sequential growth in service revenue, fueled by its pricing actions, consumer volume improvements, the continued scaling of fixed wireless access, and enhancements in the prepaid segment. Given these actions and market conditions, Verizon expects to maintain its performance and momentum throughout the remainder of the year.

Verizon's second quarter of 2024 has laid down a solid foundation for sustaining growth and profitability. The company’s strategy to innovate, expand its customer base, and ensure operational efficiency, while maintaining a strong focus on the financial health of the business, positions Verizon to meet the evolving needs of the market and its customers.