Verizon disappoints with its earnings

Second largest US phone company, Verizon Communications Inc. (NYSE:VZ), fell short of its earnings figures after fresh wireless subscribers caused profit-crushing subsidies in Smartphones.

Market had forecasted a drop of 50 cents on an average. This was proved when the company announced that earnings fell 45 cents per share.

Monthly figures show that Verizon Communications Inc. (NYSE:VZ) added 2.1 million users with the majority opting for Smartphones. The company offers subsidies on expensive Smartphones to lure consumers into entering into 2-year contracts. But the company has also cautioned that these discounts would have a negative impact on profits.

Smartphone consumers are heavy data users which result in bigger monthly bills and higher revenue for the company. It’s just a short term loss compared to the long-term consistent gains but they have to bear the initial pain of offering costly phones at cheap rates to consumers.

But, on the other hand, Verizon’s discount costs could come down as new Smartphone entrants vie for a market share and manufacturers slash prices. This is what happened even with the basic phones - stiff competition leading to fall in prices.

Verizon Communications Inc. (NYSE:VZ) stock went up almost 1% to $42.94 today and the share prices rose 7.9% in the past year which is the third successive year of upward movement.

Fourth quarter sales were up 5.7% to $30 billion as forecast by analysts. But the company announced a loss of $4.23 billion which could be attributed mainly to cover a pretax charge of $7.19 billion for severance and benefit payments as well as pension liabilities.

Quarterly sales figures show that the company sold 3.6 million Android-based phones and 6.2 million iPhones, double than last quarter. Verizon, which is jointly owned by Vodafone Group, is enticing Smartphone consumers with faster networks based on a new technology named as LTE (Long-Term Evolution).

Additionally, Verizon Communications Inc. (NYSE:VZ) added 134,000 FiOS TV clients much less than last year. The total revenue for the landline category was $9.99 billion, a shade less than $10.1 billion last year.

Verizon Communications Inc. (NYSE:VZ) were down 0.51% to $42.72.