This Move could Keep Verizon Profitable for Years to Come
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Here we have a company with limited competition, growing market, and a healthy dividend that has averaged 5.3% over the previous five years. This solid company is Verizon (NYSE: VZ) and will continue to grow with the future, but one particular venture could make this company stand out even more.
This last quarter, the stock increased revenue while adding 501,000 contract customers in the quarter, roughly in line with the average expectation for just over 511,000 but also down from the 1.2 million from the last quarter. Verizon is usually the first big operator to report, so as they go, the market tends to follow. Since its growth was a bit sluggish, the industry might see less people coming into wireless as much as it sees upgrades.
One big payout for Verizon in the future may be its alliance (or experiment) with Microsoft (NASDAQ: MSFT). This possible partnership has developed as a result of Verizon and Apple (NASDAQ: AAPL) working together on the iPhones. Originally, Verizon could see incredible increases in revenue by working with Apple. It started with the iPhone 4. Now consumers had a choice and were not at the mercy of AT&T’s (NYSE: T) data plans that tend to be a bit expensive. AT&T customers now could flock to Verizon as an alternative.
The numbers show that Verizon has profited from working with Apple. Profits are up 17% in the first quarter but it has come with a huge price. Carriers pay around $400 to subsidize the cost of each iPhone and keep them affordable for consumers, a burden that has weighed on their margins and raised concerns among Wall Street analysts. Verizon is going to have to be cutting costs to offset the subsidy burden.
The company is looking for alternatives and has possibly found it in Microsoft Windows 8 phone. With a third alternative (if it works) Apple won’t be able to call all the shots like it does now. With 37 million iPhones sold (and the best sellers for both Verizon and AT&T) Apple is presently outselling Android and could get a foot hold on the U.S.market. The big carriers are not too thrilled about this.
The more the iPhone succeeds, the less control or say carriers will have. Right now Apple dictates the hardware and software in the iPhones as well as stores it is purchased in through media rights. Microsoft will give more leeway to the carrier. Some of Verizon’s will be able to be preloaded on the new phones as they are on the Windows 7 phones now. Other apps with its partners from the app store will be featured. Thus we have a good reason for Verizon revealing its plans to aggressively promote Windows Phone 8.
With Google (NASDAQ: GOOG) buying Motorola Mobility, the company will have the ability to emulate how Apple approaches controlling the hardware and software in the Android phones. This is another reason to support Microsoft, because it would be less desirable for consumers dealing with two “Apples.”
In this move, there is great risk, but also the possibility of great rewards. It may be hard to pry iPhone customers away from Apple, but the possibility of converting Android customers may pick up a new clientele base. So Verizon’s investment could pan out nicely for the company and continue to expand a market base worldwide.
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
