Although the IT business is still thriving, there are certain cases that show it’s not at all the land of honey and milk. The second largest U.S. phone carrier has managed to record an interesting fourth quarter. First of all, Verizon posted a $2 billion loss for and, secondly, a record revenue growth in 4Q.
Fourth quarter was difficult for Verizon, as the company’s decision to sell iPhone 4S at the end of the year was much of a good idea. Reuters writes that “Verizon paid dearly to put iPhones in the hands of subscribers in the latest quarter, holding back its profits in the hope that its customers will rack up higher monthly bills and stay loyal”.
The fact remains that Verizon sold 4.3 million iPhones 4S and 7.7 million smartphones total in the quarter, without any data on how many customers were estimated to expect the launch of iPhone 4S with Verizon. Although a $200 deal from phone companies sounds a lot better than the $600 customers pay for an iPhone in the Apple store, there’s still a question whether subsidizing to such extent is really worthwhile.
Bloomberg writes that “the strategy of subsidizing smartphones helped Verizon add 1.2 million subscribers monthly contracts”. The result made it into to the top best over the last two years.
James Ratcliffe, analyst with Barclays Capital, asked himself, before the earnings report, whether the subsidizing strategy will “drive greater profitability in the wireless business down the road”. Ratcliffe also pointed out that it “the average smartphone customer will spend about $2,000 over the two-year contract, if the subsidy is $400, you’re still getting $1,600, and that’s very cash-flow positive”.
Another obvious aspect is that Verizon had to give higher subsidy costs to boost its iPhones sales. Somehow, the company managed to match the average of earnings given by Bloomberg. Thus, earnings, except certain items, fell to 52 cents a share. Total sales rose 7.7 percent to $28.4 billion, while the wireless revenue boosted 13 percent to $18.3 billion.
The company has also posted a $2.02 billion, or 71 cents per share, in the fourth quarter. The loss is given by the company’s investment in a pension plan revaluation. Verizon shares fell 2.1 percent to $37.59 at 11:04 a.m. in New York trading.