Verizon Q1: Wireless Impressive, Wireline Margins Weak

Goldman Sachs on Verizon’s (VZ) in-line quarter. Good wireless growth and margins:

Wireless EBITDA margins of 44.9% were 30 bp above our estimates despite higher than expected net additions (1.47 mn net adds above our 1.33 mn estimate: 1.3 mn postpaid above AT&T’s 705K). Total churn of 1.19% was largely in line with our estimates. Wireless EBITDA of 4.555bn was 0.4% above our estimates.

But concern over Wireline and Enterprise. Enterprise was particularly weak and actually contracted 0.2% year-over-year. These relatively weak metrics raise concerns over the possibility of continued macro headwinds. Goldman’s stimates and price target are under review:

Wireline revenues of $12.29 bn missed our expectations (GS $12.43 bn). The revenue miss was driven by weakness in Enterprise, which actually had negative yoy growth of 0.2% (down 40 bp sequentially). Margins of 27.3% were 90bp below our expectations, and flat versus last year despite potential progress on FiOS diluation and MCI-related cost cuts. Operating metrics were slightly more positive. While line loss was 8.2%, up another 10bp sequentially (GS est 8.1%), FiOS video and broadband drove outperformance. Broadband net adds were 266K (GS 254K), driven mainly by FiOS (262K) while video net adds were 263K (GS 240K).

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