Verizon profit misses expectations, shares fall

NEW YORK Thu Apr 24, 2014 12:41pm EDT

A man is silhouetted against a video screen with Vodafone and Verizon logos as he poses with a Samsung Galaxy S3 in this photo illustration taken in the central Bosnian town of Zenica, September 3, 2013. REUTERS/Dado Ruvic

A man is silhouetted against a video screen with Vodafone and Verizon logos as he poses with a Samsung Galaxy S3 in this photo illustration taken in the central Bosnian town of Zenica, September 3, 2013.

Credit: Reuters/Dado Ruvic

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NEW YORK (Reuters) - Verizon Communications Inc's reluctance to offer mass discounts in a near-saturated mobile market is costing it new subscribers, analysts said on Thursday as the largest U.S. wireless carrier missed Wall Street's profit expectations.

Shares of Verizon were down nearly 3 percent at midday on Thursday, making it the biggest percentage loser among Dow Jones industrial average component stocks.

While its rivals have engaged in aggressive discounting, Verizon has been more conservative in price cuts in an attempt to preserve revenue per user at the expense of subscriber adds.

"Verizon and AT&T have solid networks but their price premium is so large that it is going to be very hard for everyone to have their cake and eat it too," said Craig Moffett,

a senior analyst at MoffettNathanson.

"They will have to sacrifice growth or margin going forward and the market is coming to precisely that realization," he said.

The company has targeted its device installment plans and discounts at its high-data customers, prompting some low-end subscribers to switch carriers.

"We've built our brand on a superior network. We are not going to be the low-cost provider in the marketplace," Verizon's chief financial officer, Fran Shammo, told Reuters.

"Not every subscriber is equal," he said. "We will take our time and respond where we need to respond. We will attack the quality base of customers that we are targeting."

The company's wireless business added 539,000 postpaid subscribers in the quarter, 20 percent less than in the year-ago quarter, while No. 2 carrier AT&T Inc added 625,000 subscribers, blowing past Wall Street expectations.

Analysts say that as the industry leader, Verizon is looking to maintain its premium price point as a sign of a superior product even at the expense of additional subscribers.

"It is very easy in this industry to lower prices, but it is almost impossible to raise them," said Roger Enter of Recon Analytics.

"They are rightfully cautious about not jumping head-on into what could be a price war," he said.

Excluding unusual items, Verizon's earnings per share of 84 cents fell short of Wall Street expectations of 87 cents per share.

The No. 1 U.S. mobile provider earned $5.98 billion in the first quarter, compared with $4.86 billion in the year-ago quarter.

On the wireline side, it said it added 57,000 FiOS video customers and 98,000 net new FiOS Internet connections in the quarter.

The company said wireless customer defections, known in the industry as churn, increased slightly from a year ago.

Revenue rose 4.8 percent, the highest growth rate in five quarters, to $30.82 billion from $29.42 billion a year earlier. Wall Street expected $30.698 billion, according to Thomson Reuters I/B/E/S.

Its February acquisition of Vodafone Group Plc's 45 percent share in their prior joint venture for $130 billion gave the company access to greater amounts of cash flow.

Verizon shares were down 2.6 percent at $46.18 on the New York Stock Exchange at midday on Thursday.

(Editing by Matthew Lewis)

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