Verizon's stock rises after earnings - and a surprise entry into a new AI business area

By Emily Bary

Thanks to its 'dark fiber' deal with Google, Verizon has a 'new revenue stream that's above our core business,' its CFO says

Verizon expects accelerating growth on total mobility- and broadband-service revenue.

It's a new era at Verizon Communications, and the company is upping its financial forecasts while charging forward with a new artificial-intelligence opportunity.

Verizon (VZ) on Friday reported 184,000 postpaid phone net additions for the second quarter, above the 106,000 FactSet analyst consensus view. The performance also marked a dramatic reversal from a year earlier, when Verizon posted a net loss on the metric.

Shortly after CEO Dan Schulman took over the top post, he vowed in January that the company would stop being a "hunting ground" for wireless competitors looking to pick up new subscribers of their own. At the time, Wall Street was doubtful that Verizon would be able to pull off the transformation without eroding its financials or offsetting the industry balance.

Schulman took a victory lap of sorts in Friday's press release.

"We are accelerating across our key metrics, achieving a step-change in churn reduction while lowering our customer acquisition and retention costs," he said. "By compounding lower churn with healthier unit economics, we have generated the strongest operating position we have seen in years." Churn refers to the rate at which customers leave a network.

CFO Tony Skiadas told MarketWatch that Verizon has seen increasing success with converged offerings, through which the company bundles mobile and internet service. "The early returns are really encouraging from what we see right now," he said.

Verizon shares were up 3% in afternoon trading on Friday.

The company is also making a new AI push via a $1 billion "dark fiber" deal that it just struck with Google (GOOGL) (GOOG). This will see the Verizon use its low-latency fiber network to help transport data for the hyperscale cloud company.

"It's a new revenue stream that's above our core business" with "great margins," Skiadas said.

Verizon isn't content to stop with Google as it thinks about the opportunity in fiber connectivity for data centers, Skiadas added. "There's a lot of folks knocking on our door right now, so we're excited," he said.

"The buildout of AI infrastructure across the United States is one of the largest capital cycles of our lifetime, and Verizon is uniquely positioned to participate in it," Schulman said on the company's earnings call.

In the second quarter, Verizon's adjusted earnings per share came out to $1.30 for the second quarter, up from $1.22 a year before and ahead of the $1.28 that analysts tracked by FactSet were modeling.

Revenue dipped 0.7% relative to a year earlier and came in at $34.3 billion, below the $35.2 billion consensus view.

But revenue misses aren't necessarily viewed as bad things in the eyes of wireless investors. Verizon noted that its top-line total reflected a nearly 20% drop in equipment revenue as the company pulled back on device promotions and saw customers hold on to phones for longer.

"It is another demonstration of Verizon's more disciplined approach as the company structurally evolves its business model," Verizon said in its earnings release.

Service revenue for mobility and broadband rose 2.8% in the quarter, and Verizon forecasts accelerating performance later in the year. It expects total mobility- and broadband-service revenue growth to "approach" 3% in the third quarter and about 4% in the fourth quarter.

Verizon's full-year guidance on the metric now calls for 2.5% to 3% growth, versus its prior outlook of 2% to 3% growth.

See also: T-Mobile's stock sinks despite customers pouring into premium plans

-Emily Bary

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