Despite Q4 loss, Verizon shows strong smartphone growth

Shares of Verizon down Tuesday after fourth-quarter earnings miss estimates

Shares of Verizon Communications (NASDAQ: VZ) were down Tuesday following the company's announced fourth-quarter loss, but not to the point where you could say the stock was being punished.

After falling as low as 44 cents, or 2.9% below Monday's closing price of 38.40, Verizon shares were at 37.74 by early Tuesday afternoon, down just 1.7%.

However, numerous other tech stocks were in the red Tuesday, including Verizon rivals AT&T, which was down 1.4%, and Sprint Nextel, down 2.4%. (AT&T, by the way, is set to report earnings on Thursday, while Sprint announces its quarterly results on February 8.)

What likely bothers Wall Street regarding Verizon's fourth quarter is not the loss of 71 cents a share (versus last year's earnings of 93 cents a share), which was due to already expected pension-related charges, but that Verizon's adjusted earnings of 52 cents a share fell one penny short of average analyst estimates.

Which they did. But fourth-quarter revenue of $28.44 billion just beat estimates of $28.43 billion and was 7.7% above last year's Q4 revenue. Verizon said it was the "highest year-over-year quarterly revenue growth in the company’s 11-year history."

You can attribute much of that to Apple's iPhone (which Verizon began selling for the first time last year), particularly the iPhone 4S, which Apple says is the fastest-selling smartphone in its history.

Verizon announced 4.3 million iPhone activations in Q4, along with adding 2.3 million smartphones to its 4G LTE network. Verizon now has 108.7 million wireless subscribers, a net gain of 6.3% over last year's fourth quarter, though just 1 million more than in the third quarter.

While Verizon remains the top U.S. wireless carrier, AT&T is close behind, with 100.7 million wireless subscribers through last September.

Based on Q4's numbers, smartphones soon will account for more than half of Verizon's wireless subscriber base. The percentage of Verizon's retail postpaid customers using smartphones jumped to 44% from 39% in the third quarter.

This also was reflected in the 19.2% year-over-year growth in data revenue to $6.3 billion.

But the aggressive pursuit of data-consuming customers is costly. Verizon has spent heavily on building out its infrastructure, recently paying almost $4 billion in wireless spectrum, because a lot of people need to play Angry Birds on their mobile devices.

Of course, what choice does Verizon have but to continue spending on its wireless network? Its main rival was willing to shell out $39 billion last year to buy T-Mobile USA.

And Verizon's landline revenue continues to shrink. While wireless revenue climbed 13% in the fourth quarter to $18.3 billion, wireline revenue slipped 1.5% to $10.1 billion. Verizon CEO Lowell McAdam said in a statement accompanying the earnings report that the company intends to improve wireline margins, but the division will contribute increasingly less to overall revenue, FIOS or no FIOS.

ITWorld DealPost: The best in tech deals and discounts.
Shop Tech Products at Amazon