Verizon: Should you Buy or Should you Hold?

Last week at 4GWE and ITEXPO, Verizon speakers were absent for the first time during our shows. Strike Duties were the fear factor that made it impossible to get a commitment from the VZ side and from the VZW side; I think they are letting the network speak for itself.

The speeds I am seeing out of the LTE network are truly magnificent and its clear Verizon wants to pull away from the pack with its capital investment. Last quarter, Verizon reported $2.7 billion in capital investment. According to Engadgetmobile, Verizon’s LTE deployment looks like it will reach over 175 cities two months ahead of schedule.

Unfortunately, the payback on the investment may take longer than Verizon initially thought; as Jim Juback points out.

“For the second quarter, reported on July 22, Verizon did add wireless subscribers to the tune of 1.23 million. Which would have resulted in really great news for the company’s revenue and profit lines except that the new and old users didn’t show much inclination to spend more on their monthly wireless bill by increasing their use of data services,” Juback said.   

So while the commercials suggest that watching NetFlix on Android is a common occurrence, the majority of the customers recognize that the last 20 minutes will generate overages.

Jim Juback suggests selling for those who currently hold a position in Verizon and is independent of a dividend analysis. Part of his analysis is based on the view that you have gotten a good return on your money already with over a 20 percent increase in the stock price since last year.

The need for speed may put Verizon way out in front with customer additions, while AT&T swims upstream as its acquisition of T-Mobile and Sprint tries to navigate it’s relationships with Clearwire, Ericsson, Lightsquared and the cable operators. 

In short, Verizon’s wireless subscriber base is pretty stable. 

What’s to stop them from dominating the market in the next few years? Is the VZW deployment of LTE the equivalent of Apple’s iPad2?

I believe Verizon Wireless has found the price sensitivity of its customers; unlike AT&T that owns an extensive WiFi solution that can be used for offload and Sprint that has enough spectrum that it can afford to provide with a flat rate price. Verizon’s capital investment needs some payback.

I am not sure if the price points being used are based on product management’s IRR, technological analysis or market data, but based on their numbers the upside has yet to be found.

However, it may be in the end speed and access will be so far superior that the gain share will happen quickly. If the next iPhone is not exclusive and is LTE, then Verizon Wireless may yet to see the dreamed of numbers they were hoping for with that partnership.

So if you don’t have a position in VZ you may want to take one. Or you could just buy more Apple.