To The Moon

$Verizon(VZ)$ 

Consolidated numbers

Quarter over Quarter

Operating revenue decreased by 6.15%, largely due to a drop in wireless equipment revenue, which fell by $2.19 billion (this type of revenue refers to earnings from the sale of physical devices and accessories).

It's important to note that comparing these earnings with the previous quarter can be misleading, as that quarter included additional revenue generated from the end-of-year holidays.

Net income was impacted, but not as significantly, experiencing a decrease of 2.56%. This decline was counterbalanced by a reduction of $2.7 billion in operating expenses.

You might be wondering why net income wasn’t higher, given that the decrease in operating expenses ($2.7B) was much larger than the drop in operating revenue ($2.19B).

The answer lies in a substantial decrease of 84.81% in other income (which is generally nonrecurring events), falling from $797 million to $121 million. This decline nudged net income slightly lower than the figures from the previous quarter.

There was little change in earnings before interest, taxes, depreciation, and amortization (EBITDA).

ARPA experienced an increase of 3.37%, indicating that more add-on services are being adopted.

In total wireless revenue, the decrease in equipment revenue mentioned above was partially offset by a $766 million increase in wireless services.

One possible reason for this increase is a higher ARPA, charging more can lead to greater earnings, but it was still insufficient to show overall higher figures.

Year over Year

Verizon demonstrated solid performance when analyzing the year-over-year numbers. The company experienced an increase in operating revenue, with minimal changes in operating expenses. This combination led to a higher net income.

Additionally, EBITDA saw an increase, primarily driven by the improved net income figures.

Total wireless revenue increased overall, with fixed wireless access (FWA) revenue rising by 47.8% from $452 million to $668 million. These are very positive numbers!

Verizon paid out $2.9 billion in cash dividends, which equals a 58% payout ratio (how much of the net income is returned to shareholders as dividends).

Now let’s look at each segment in more detail.

Consumer Segment

Quarter over Quarter

Upon closer inspection, we can see that the majority of the impact on the consolidated operating revenue (shown in the previous section) came from the consumer segment of the business, which accounted for $1.9 billion of the $2.19 billion total decrease from consolidated wireless equipment sales.

Interestingly, the segment's operating income increased by 7.53%. This rise was attributed to a reduction in operating expenses, largely driven by a decrease of $2.3 billion in the cost of wireless equipment. The higher operating income was also the driver of the higher EBITDA figures.

For context, Verizon frequently sells devices at or near cost, and sometimes even at a loss, particularly when offering installment plans with promotional credits.

The primary source of profit for the company comes from its wireless service revenue. Therefore, as both revenue and costs are decreasing, this may indicate a decline in sales activity.

Total broadband experienced a 2.29% increase with 230K net additions, primarily driven by growth in the fixed wireless access (FWA) connections. This indicates a higher demand for FWA and is contributing to Verizon’s growing market share.

Year over Year

The quarter showed mostly low growth, but it was still positive overall. Operating revenue increased by 2.23%, amounting to an additional $561 million, primarily driven by a rise in service revenue, resulting from pricing actions, higher adoption of perks, and premium MyPlan offerings.

Operating income remained relatively stable, as operating expenses rose by $509 million due to increased depreciation and costs associated with wireless equipment.

Despite the higher expenses, EBITDA grew by 2.67%, indicating strong operational efficiency.

Total broadband growth reached double-digit growth, increasing by 10.18%. This notable rise resulted in 974 thousand new connections, of which 844 thousand were fixed wireless access (FWA) connections, contributing to the higher service revenue figures.

It is also important to note that Verizon reported a loss of 356 thousand connections in the quarter, a decrease of 83.5%. This was due to heavy competition and lower customer confidence.

Business Segment

Quarter over Quarter

The business segment experienced a 2.90% decrease in operating revenue, with all three categories (Enterprise and Public Sector, Business Markets and Other, and Wholesale) reporting lower figures.

The operating income showed significant growth of 11.78%, driven by lower costs for wireless equipment (at $160 million) and the cost of services (down by $39 million).

Despite lower expenses, Verizon was unable to achieve a more substantial growth in its EBITDA, which increased by only 1.75%.

Total broadband grew by 3.32%, primarily due to an increase in FWA connections by 77 thousand. However, net broadband additions decreased by 30.57%, suggesting reduced momentum in market share gains for this segment.

Year over Year

Operating revenue was negatively affected, with two categories -Enterprise and Public Sector, as well as Wholesale - reporting lower revenues.

The Business Markets and Other category saw a 3.7% increase due to pricing actions and new FWA subscriptions, although it was not enough to offset the declines in the other categories.

According to management, the decrease in the Public Sector category is likely driven by changes to the size and scope of the federal government, including reductions in the workforce, budget priorities, and cost efficiency measures.

On the other hand, operating income saw a significant increase of 66.41%. This rise can be attributed to a $355 million reduction in expenses, primarily due to lower selling, general, and administrative costs.

These savings were largely a result of decreased personnel costs from workforce changes, specifically related to the voluntary separation program that began in June 2024 and concluded in March 2025.

The reduced expenses resulted in a 10.28% increase in EBITDA for the business segment.

Total broadband connections grew significantly by 31.60%, but net additions fell sharply by 27.33%, primarily due to heavy competition and reduced spending by government agencies.

Highlights of the quarter

March 2025 – NSR/BCG Conference

• Focus on churn reduction by improving customer service

• Lower churn seen with C-Band services

• Aiming to return to phone gross add positive

• Reduction in immigration has not significantly impacted the business so far.

• Verizon’s MDU product (Multi-Dwelling Units) is another use case for the millimetre wave spectrum

• Frontier acquisition – Grow market share and broadband market. It will also allow cross-marketing and generate cost synergies.

• Fibre penetration is expected to grow substantially in the next 5 years.

April 2025 – Announced customer value increase programs

• 3 years price lock guarantee on all plans

• Free phone with any myPlan with trade-in and home router guarantee for every myHome plan

• Free satellite text messaging (qualifying devices), perks for cheaper streaming services subscriptions, and Verizon’s credit card and open bank high-yield savings account.

BONUS:

Interpretation of Financial Statements

In this article, I would like to start a series inspired by the book "Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett and David Clark. I highly recommend this book, and for each quarterly analysis, I will apply the insights from specific chapters of the book.

Today, we will cover the Gross Profit Margin.

Before discussing the margin, it's important to understand the Gross Profit. Gross Profit refers to the amount of money a company makes from its total revenue after subtracting the costs associated with providing services (like labor) and the expenses for raw materials (such as equipment).

It's important to note that Gross Profit does not include other expenses, such as selling, general, and administrative expenses, or depreciation and amortization.

Then, in order to get the Gross Profit Margin, the equation will be as follows:

Gross Profit ÷ Total Revenues = Gross Profit Margin

Based on the above statement of income from Verizon, we should have $20,429 billion (Gross Profit) ÷ $33,485 billion = 61% Gross Profit Margin.

Generally, companies with a gross profit margin of 40% or higher possess a durable competitive advantage (there are exceptions, though), enabling them to sell their goods and services at prices significantly exceeding their cost of goods sold.

For comparison, in 2024, Verizon achieved 59.86% of gross profit margin. Here you can see an extended comparison for other companies in the same sector:

It is also important to look for long-term consistency in higher gross profit margins to make sure the company indeed has a durable competitive advantage.

In Verizon’s case, in the last 4 years, they have consistently delivered 56% or above in margins.