Revenue of $34.3 billion missed estimates as equipment sales dropped 9%, a decline Verizon tied to fewer subsidized upgrades. Margins, free cash flow and subscriber growth all improved, and the company signed an AI infrastructure deal with Amazon Web Services valued at more than $2 billion.
Verizon delivered most of what telecom investors usually ask for on Monday: more customers, wider margins, more cash and a higher forecast. The stock still fell.
The company added 406,000 postpaid phone customers in the third quarter, about twice the roughly 209,000 that analysts polled by Visible Alpha had expected. Adjusted earnings rose 8.3% to $1.31 a share. Free cash flow rose 12.1% to $7.8 billion, and adjusted Ebitda rose 8% to $13.8 billion, a margin of 40.2% against 37.8% a year earlier.
Total revenue, though, rose only 1.5% to $34.3 billion, short of the $34.74 billion analysts expected, according to LSEG data. Verizon shares were down 3.41% at $43.14 in early afternoon trading, while AT&T slipped 0.26%, T-Mobile US 1.10%, and the S&P 500 rose 0.63%.
Where the revenue went
The shortfall sits in one line. Equipment revenue fell 9% from a year earlier, which Verizon attributed to lower upgrade volumes and reduced device subsidies. The services side, which carries the recurring income, grew: mobility and broadband service revenue rose 2.9% to $23.5 billion, an acceleration from 2.8% in the second quarter and 1.6% in the first.
In other words, Verizon is selling fewer subsidized phones and keeping more of what it earns from the customers it has. That is consistent with the jump in margins. The question investors appear to be weighing is whether the subscriber gains can last as the company pulls back on device subsidies.
A third raise
Verizon raised its full-year guidance for the third consecutive quarter. It now expects 1.1 million to 1.2 million postpaid phone net additions, against a prior target in the upper half of 750,000 to 1 million. Adjusted earnings guidance rose to $5.04 to $5.06 a share, or growth of 7% to 7.5%, from 6% to 7%. Free cash flow growth is now expected to approach 12%, up from 9% to 10%, and mobility and broadband service revenue growth to reach about 4% in the fourth quarter.
The balance sheet also improved. Net unsecured debt fell by $5 billion during the quarter to $123.7 billion, or 2.3 times adjusted Ebitda.
The AWS agreement
Verizon also signed an agreement with Amazon Web Services valued at more than $2 billion, setting up a commercial framework for distributed computing for AI workloads. The term of the agreement and when the revenue will be recognized were not disclosed, which leaves its contribution to future quarters unclear.
Two readings
One reading is that the quarter shows a business getting stronger. Verizon is adding customers at a faster pace while spending less on device incentives, and the result is higher margins, more cash, lower debt and a forecast raised for the third time this year.
The other is that the market is looking at the top line. Revenue missed, Verizon expects the equipment decline to continue into the fourth quarter, Reuters reported, and the stock fell further than its two main rivals on a rising day for the market. Strong subscriber numbers matter less if they do not turn into revenue growth.
What to watch
The fourth-quarter equipment trend and phone churn, any detail on the AWS agreement's revenue timing, promotional activity at AT&T and T-Mobile US, and how Verizon's shares close against the market.