Verizon 3Q24 Report - 31% Drop in EPS, What Is Going On?

This quarter $Verizon(VZ)$ released their reports with a shocking 31% drop in EPS compared to 3Q23. This was primarily driven by a severance charge of $1.7 billion from a voluntary separation program announced in June 2024. Don’t be fooled by the short-term numbers, this program is intended to pave the way for future financial improvement in the long run.

The severance charge affected the consolidated net income by -30.2% and EBITDA by -13.57% compared to 3Q23.

Verizon reported an Adjusted EBITDA of $12.5 billion, which excludes severance charges, marking the highest figure in the company's history.

Business Segment:

The segment gave us a bit of a surprise with the operating income for the quarter being 4.8% higher than in 3Q23, primarily driven by an increase of 18.5% in net broadband additions for the same period. The quarter-over-quarter increase in operating income was an impressive 13%, marking the highest figure reported this year to date. This suggests a positive income recovery as we approach the end of the year, although it is still expected to be lower than in the year-end 2023 numbers.

The segment EBITDA experienced a 3.7% decline compared to 3Q23, but showed a modest quarter-over-quarter growth of 1.71%. Similar to the recovery in operating income, the segment EBITDA reached its highest figure for the year so far, although it remains lower than the levels seen in 2023.

Overall, the segment has faced challenges since the beginning of the year, but the reported numbers this quarter are starting to show a positive recovery trend.

Consumer Segment

The segment saw a modest growth of 0.8% in operating income compared to 3Q23, and virtually no change quarter-over-quarter. The EBITDA had a bigger growth at 1.8% compared to 3Q23, and a 0.15% increase on the quarter-over-quarter numbers.

Now, where the juicy stuff is. The net broadband additions experienced a concerning decline of 22.7% compared to 3Q23. These numbers are sitting at lower levels due to the shutdown of some of their plan programs over the previous quarters this year.

However, when looking at the quarter-over-quarter perspective, there was a slight increase of 1.73%. This increase is likely attributable to the recently implemented myHome plan. We will continue to monitor the quarter-over-quarter numbers closely.

The reason the segment financial numbers have seen growth even though net broadband additions dropped significantly is once again due to an increase in their ARPA (average service revenue per account) of 4.2% compared to 3Q23. In the graph below you can see how there has been a constant increase in the ARPA over time. Many investors are wondering how much more room Verizon has to increase prices before seeing an increase in churn, but management is betting on the benefits of the plan’s perks the company offers to maintain churn levels low.

Highlights of 3Q24

Vertical Bridge

On September 2024, Verizon entered into an agreement with Vertical Bridge to give them exclusive rights to lease, operate and manage over 6,000 wireless towers for 30 years. The transaction set to be completed by the end of 2024 will be approximately of $2.8 billion and paid upfront, which Verizon will account as financing obligations (long-term liability). They will reduce the liability over time as they “earn” the prepaid amount, which reflects good financial management, as it smooths out the revenue making it appear more stable over time instead of a huge one-time gain.

Frontier Communications Parent, Inc.

On September 2024, Verizon also entered into an agreement to acquire Frontier Communications, the transaction is still pending approval by Frontier’s shareholders which is valued at $20 billion. This merge will be accretive to revenue and adjusted EBITDA once closed, which means it will immediately increase these numbers instead of a long ramp-up financial benefit as opposed to the Vertical Bridge deal. This deal is expected to bring an increase on the fiber subscribers number by 2.2 million and cost savings of $500 million annually.

Private Network Deals

FIFA and Madison Square Garden (MSG) are set to announce partnership deals with Verizon aimed at buying private networks to enhance capabilities in densely populated areas, although management has not shared any additional details. These deals will require Verizon to scale up the private network service.