Verizon Communications Inc.

Date: January 30, 2024.

Company’s Overview

Verizon Communications Inc. (VZ) is an American multinational telecommunications holding company that offers a wide range of telecommunications services, including wireless, wireline, broadband, and television to consumer, business, and government customers.

The company’s operations are concentrated in the United States, but it also has a significant presence in Canada and Latin America. Verizon’s products and services include:

1. Wireless: which offers a variety of wireless plans and devices, including smartphones, tablets, and home broadband.
2. Wireline: which offers wireline services, including internet, phone, and video.
3. Broadband: offers a plethora of broadband services, including Fios and FiOS Home Internet.
4. Television: offers television services, including FiOS TV and DirecTV.
5. Government: which provides telecommunications services to the government, including public safety and defence.

The Company’s revenue proportions for the most recent fiscal year are composed by:

Related Risks

Verizon faces several risks that could impact its business operations and financial performance. These risks can be broadly categorised into economic, regulatory, and competitive risks.

Economic Risks:

• Economic downturn: A global economic downturn could lead to lower consumer spending on telecommunications services.
• Inflation: Rising inflation could erode consumer spending power and reduce demand for Verizon’s services. Additionally, inflation could increase the cost of raw materials and labour, which could put pressure on Verizon’s margins.
• Currency fluctuations: Fluctuations in exchange rates could affect Verizon’s overseas earnings, as the company generates a significant portion of its revenue from international operations.

Regulatory Risks:

• Regulatory scrutiny: Verizon is facing increased regulatory scrutiny from the government, as the government seeks to ensure fair competition in the telecommunications industry. This scrutiny could lead to stricter regulations that could make it more difficult for Verizon to operate and compete in the market.
• Antitrust lawsuits: Verizon could face antitrust lawsuits from competitors or the government, which could result in large fines or other penalties.
• Regulatory changes: Changes in regulatory requirements could make it more difficult for Verizon to operate its network or offer new products and services.

Competitive Risks:

• Rising competition: The telecommunications industry is becoming increasingly competitive, with new entrants and existing players vying for market share. This competition could drive down prices and profitability for Verizon.
• Price wars: Verizon could face price wars with its competitors, which could lead to lower margins and profitability.
• New technologies: The emergence of new technologies, such as 5G and edge computing, could pose a threat to Verizon’s business if the company is not able to adapt and adopt these technologies quickly enough.
• Dependency on key customers: Verizon relies heavily on a few key customers, such as Apple and AT&T, for a significant portion of its revenue. If these customers were to lose market share or shift their business to other suppliers, it could significantly impact Verizon’s revenue and profitability.

The company’s management has announced several initiatives to mitigate the risks it faces. These include:

Economic Risks:

• Diversifying customer base: Verizon is expanding its customer base beyond its traditional reliance on Apple and Qualcomm. This diversification helps to reduce the company’s exposure to any downturn or shift in market share for its key customers.
• Developing new markets: Verizon is investing in emerging markets, such as India and Vietnam, to expand its sales and reduce its reliance on the Chinese market.
• Investing in new technologies: Verizon is investing heavily in developing new technologies, such as advanced packaging and 3D transistors. This helps to ensure that the company’s products remain competitive in the long run.

Regulatory Risks:

• Strengthening relationships with governments: Verizon is working to strengthen its relationships with governments around the world, including the United States, Japan, and the European Union. This helps to ensure that the company has access to the support it needs in case of geopolitical instability.
• Investing in contingency plans: Verizon has developed contingency plans to ensure that its operations can continue in the event of a major disruption, such as a natural disaster or conflict.

Operational Risks:

• Upgrading facilities and equipment: Verizon is constantly upgrading its facilities and equipment to ensure that they can meet the latest semiconductor manufacturing standards. This helps to reduce the risk of obsolescence and production disruptions.
• Improving supply chain management: Verizon is working to improve its supply chain management to reduce the risk of disruptions from natural disasters, accidents, or labour strikes.
• Enhancing cybersecurity: Verizon is investing heavily in cybersecurity to protect its sensitive data and intellectual property from cyberattacks.

Competitive Risks:

• Maintaining technological leadership: Verizon is committed to maintaining its technological leadership by investing heavily in research and development.
• Expanding into new products and markets: Verizon is expanding into new products and markets, such as specialty semiconductors and intellectual property licensing. This diversification helps to reduce the company’s reliance on traditional foundry services.
• Partnerships with key customers: Verizon is strengthening its partnerships with key customers, such as Apple and Qualcomm. These partnerships help to secure long-term orders and ensure that the company has access to the most advanced technologies.

Company’s Profitability

Revenues from 2020 to last quarter report:

• Verizon revenue for the quarter ending September 30, 2023 was $33.336B, a 2.64% decline year-over-year.
• Verizon revenue for the twelve months ending September 30, 2023 was $134.095B, a 1.15% decline year-over-year.
• Verizon annual revenue for 2022 was $136.835B, a 2.41% increase from 2021.
• Verizon annual revenue for 2021 was $133.613B, a 4.15% increase from 2020.
• Verizon annual revenue for 2020 was $128.292B, a 2.71% decline from 2019.

Meanwhile the revenues from 2009 till 2022 are:

** The 2023 and 2024 figures are the revenues that the analysts expect.

Net income from 2020 to last quarter report:

• Verizon net income for the quarter ending September 30, 2023 was $4.762B, a 2.82% decline year-over-year.
• Verizon net income for the twelve months ending September 30, 2023 was $20.896B, a 8.31% increase year-over-year.
• Verizon annual net income for 2022 was $21.256B, a 3.67% decline from 2021.
• Verizon annual net income for 2021 was $22.065B, a 23.95% increase from 2020.
• Verizon annual net income for 2020 was $17.801B, a 7.6% decline from 2019.

And from from 2009 till 2022 is:

** The 2023 and 2024 figures are the net income that the analysts expect.

EPS from 2020 to last quarter report:

• Verizon EPS for the quarter ending September 30, 2023 was $1.13, a 3.42% decline year-over-year.
• Verizon EPS for the twelve months ending September 30, 2023 was $4.96, a 7.83% increase year-over-year.
• Verizon 2022 annual EPS was $5.06, a 4.89% decline from 2021.
• Verizon 2021 annual EPS was $5.32, a 23.72% increase from 2020.
• Verizon 2020 annual EPS was $4.3, a 7.53% decline from 2019.

Management

The management has announced several major initiatives in recent years. These initiatives are designed to help the company maintain its leadership position in the telecommunications industry and prepare for the future of computing.

Investment in Advanced Technologies:

• Investment in N3 and N3S process technologies: In 2021, VZ announced a $20 billion investment in N3 and N3S process technologies, which are the world’s most advanced semiconductor manufacturing processes.
• Development of new materials for semiconductors: VZ is investing in the development of new materials for semiconductors, such as gallium nitride (GaN) and silicon carbide (SiC). These materials are expected to be used in the next generation of semiconductors, which will be even smaller and more powerful than today’s chips.

Expansion into New Products and Markets:

• Investment in specialty semiconductors: VZ is expanding its investment in specialty semiconductors, which are semiconductors that are designed for specific applications, such as automotive and industrial applications.
• Development of intellectual property (IP) licensing: VZ is expanding its IP licensing business, which provides access to the company’s proprietary semiconductor technologies to other companies.

Partnerships with Key Customers:

• Strengthening of partnerships with Apple and Qualcomm: VZ is strengthening its partnerships with key customers, such as Apple and Qualcomm, to ensure long-term supply agreements and access to the latest technologies.
• Investment in new development centres: VZ is investing in new development centres in China and the United States to work with its key customers on the development of new semiconductors.

Shares Outstanding

Verizon has a share repurchase program. The company’s board of directors has authorised a program to repurchase up to $20 billion of the company’s outstanding common stock.

As of October 4, 2023, Verizon had repurchased $13.2 billion of its outstanding common stock under its repurchase program. The company has repurchased an average of $4.4 billion of its stock per year since the program was initiated in 2020.

Milestones

Assets VS Liabilities

As of September 30, 2023, Verizon’s asset-to-liability ratio was 1.49. This means that the company has $1.49 in assets for every $1.00 in liabilities. A higher asset-to-liability ratio is typically considered to be better, as it suggests that the company has more assets to cover its liabilities.

Current Ratio

The current ratio of Verizon Communications Inc. (VZ) for the three months ending September 30, 2023 was 0.69.

If a company’s current ratio is less than 1, it indicates that the company may not have enough capital on hand to meet its short-term obligations if they were all due at once1. In other words, it has a larger proportion of liabilities relative to the value of its current assets2. This could suggest potential liquidity issues3. However, it’s important to note that the current ratio is just a snapshot at any one time and may not be a complete representation of a company’s short-term liquidity or longer-term solvency1.

Company’s Growth

Verizon Communications Inc.’s revenue growth rate has varied in recent years, but it has generally been in the range of 2% to 4%. In 2022, the company’s revenue growth rate was 2.8%. In 2023, the company’s revenue growth rate is expected to be 3.2%.

The company is expected to continue to grow in the future, driven by several factors, including increased demand for wireless services, expansion into new markets, and investment in new technologies. The company is well-positioned to capitalise on these trends and remain a strong performer in the telecommunications industry.

Specifically, Verizon is expanding its 5G network, deploying edge computing, developing new products and services, and forming partnerships with other companies to drive growth. These initiatives will allow the company to offer faster and more reliable wireless services, improve latency and reduce costs, capitalise on the growing demand for VR and AR applications, and develop new solutions for businesses.

Guidance

The management of Verizon announced its guidance for the fourth quarter and full year 2023 on October 4, 2023. For the fourth quarter of 2023, the company expects:

• Revenue: $33.5 billion to $34.5 billion
• Operating income: $5.7 billion to $6.2 billion
• Net income: $4.4 billion to $4.9 billion
• EPS: $0.64 to $0.69

For the full year 2023, the company expects:

• Revenue: $136.0 billion to $137.5 billion
• Operating income: $23.3 billion to $24.2 billion
• Net income: $17.4 billion to $18.3 billion
• EPS: $2.56 to $2.68

DCF Analysis

According to DCF analysis, VZ’s stock price is undervalued. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

According to the Wall Street Journal, the consensus rating for VZ is Hold with 9 analysts rating it as Buy, 14 analysts rating it as Hold, and 1 analyst rating it as Sell.

The average twelve-month price prediction for VZ is $41.50 with a high price target of $49.00 and a low price target of $36.00.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.