Verizon Posts 32% Gain In Quarterly Profit Q1, Faces Questions About Fox Interest And Broader Media Strategy

By Dade Hayes, Dawn C. Chmielewski

UPDATED with remarks about its interest in Fox and broader media strategy from today’s earnings call.

Telecom giant Verizon said its first-quarter net income rose 32% to $4.55 billion, or $1.11 a share, in the first quarter thanks in part to benefits from federal tax reform.

The results compared with $3.45 billion, or 85 cents per share, a year earlier. Total revenue in the period rose nearly 7% to $31.8 billion.

In Verizon’s media business, Oath, a seasonal decrease in display advertising caused gross revenue to decrease 13% from the fourth quarter (the best comparison, rather than the year-ago quarter, given the timing of the unit’s full integration). The company pointed to the media unit as being key to the company’s “mobile-first media strategy,” especially given the potential growth from premium content distribution and programmatic advertising.

Total Fios revenue, excluding the impact of the revenue recognition standard, grew 1.9% year over year, driven by growing demand for high-quality broadband service. Verizon added a net of 66,000 Fios Internet connections in the quarter and lost 22,000 Fios video connections, indicative of the continued cord-cutting trend regarding traditional linear video bundles.

“We began 2018 with strong momentum, and we expect it to continue throughout the year,” said Chairman and CEO Lowell McAdam.

The company will definitely remain of interest to Hollywood and media players through the duration of the year and beyond. It already took a close look at 21st Century Fox’s studio assets before the Disney deal was announced and has been seen as an interested party in regard to companies such as Lionsgate, Viacom and CBS.

Analysts pressed Verizon CFO Matthew Ellis on the wireless carrier’s interest in acquiring traditional media outlets — and specifically, Fox’s film and television assets, as was broadly reported last week.

“I’m not going to comment on any specific M&A rumors,” Ellis said. “That’s not been our policy and I’m not gong to start now.”

Ellis talked generally about how Verizon thinks about acquisitions, saying the company pursues deals, such as the $4.5 billion acquisition of Yahoo, when they accelerate the company’s strategy. The purchase of aging internet giant Yahoo, for instance, helped push the reach of its Oath subsidiary 1 billion people globally — a number advertisers find attractive.

UBS Telecom and cable analyst John Hodulik wondered if Verizon is feeling pressure to make a play for a traditional media asset to compete with its chief wireless industry rival, AT&T, which is defending its proposed $85 million merger with Time Warner in court.

Ellis said Verizon is happy with its strategy of playing the role of digital distributor. He highlighted a deal struck earlier this year with the NBA, which allows Verizon to sell subscriptions for NBA League Pass (to listen to live broadcasts of playoff games) and let users stream out-of-market games through its Yahoo Sports app. This League Pass has previously been offered through Go90, but Oath’s Yahoo Sports arguably has a more recognizable consumer brand.

“The content space is evolving rapidly,” Ellis said. “We think the best approach for us, in this point in time, is to be that independent distributor of rights. We’ll be very effective in doing that.”

As Verizon begins to test 5G residential broadband service later this year in three to five markets, including Sacramento, analysts wondered if the wireless carrier might introduce a streaming video offering.

“We continue to look at OTT options,” Ellis said. “As we said previously, we’re not looking to launch a me-too product, but we expect to have an overall product …. that will be compelling and meet those needs.”

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