Verizon Communications Inc.

Verizon Communications Inc. - Financial and Strategic Analysis Review

Publication Date: 30-Sep-2013 Reference Code: GDTC34019FSA

Company Snapshot
Key Information
Verizon Communications Inc., Key Information Web Address www.verizon.com Financial year-end December Number of Employees 181,900 NYSE VZ
Source : GlobalData

Company Overview
Verizon Communications Inc. (Verizon) is a communications services provider. The company offers a range of broadband, wireless, and wireline services to business, government, mass market and wholesale customers. The companys offerings include wireless voice, data services and other value-added services; and voice, internet access, broadband video and data, Internet protocol network services, network access and other services. Verizon provides converged communications, information and entertainment services across the US through its fiber-optic network. Verizon offers business solutions to customers in about 150 countries across Americas, Europe, the Middle East, Africa and Asia Pacific. 155.92 9.03.00 2.64 156.79 11.36 0.04 Wireless Capacity and Coverage Opportunities Threats Competition Rapid Technological Changes Government Regulations

Key Ratios
Verizon Communications Inc., Key Ratios P/E EV/EBITDA Return on Equity (%) Debt/Equity Operating profit margin (%) Dividend Yield

SWOT Analysis
Verizon Communications Inc., SWOT Analysis Strengths Weaknesses Strong Financial Performance Supplier Dependency Strong Wireline Network Decline in Liquidity

Note: Above ratios are based on share price as of 27-Sep-2013 Source : GlobalData

Share Data
Verizon Communications Inc., Share Data Price (USD) as on 27-Sep-2013 EPS (USD) Book value per share (USD) Shares Outstanding (in million)
Source : GlobalData

Expanding 4G LTE network 47.00 0.31 11.60

Source : GlobalData

Business initiatives Demand for Smartphones

2,862

Financial Performance
Performance Chart
Verizon Communications Inc., Performance Chart (2008 2012) The company reported revenues of (U.S. Dollars) USD 115,846.00 million during the fiscal year ended December 2012, an increase of 4.48% over 2011. The operating profit of the company was USD 13,160.00 million during the fiscal year 2012, an increase of 2.17% over 2011. The net profit of the company was USD 875.00 million during the fiscal year 2012, a decrease of 63.60% from 2011.

Source : GlobalData

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Verizon Communications Inc. Verizon Communications Inc. - SWOT Analysis

SWOT Analysis - Overview
Verizon Communications Inc. (Verizon) is a leading provider of communication services across the world. The company principally delivers broadband and other wireline and wireless communication innovations to mass market, business, government and wholesale customers. Its strong wireline network and substantial wireless capacity and coverage has strengthened its operations in the telecommunication market. Moreover, its focus on expanding 4G LTE network coupled with growing cloud computing market and demand for smart phones would improve its business position. However, competition, government regulations and rapid changing technology may affect the company's operational plans .

Verizon Communications Inc. - Strengths Strength - Strong Financial Performance

Verizon showcased strong financial performance in 2012. For the fiscal year ended December 2012, the company reported revenue of $ 115,846m, indicating an increase of 4.48% over $110,875m in 2011. The companys Verizon Wireless segment contributed to the increased revenue of the company. The segment reported growth of 8.1% in 2012 over revenue generated in 2011. The company reported gross profit of $69,571m, indicating an increase of 7.03% over $65,000m in 2011. Verizon reported operating income of $13,160m, indicating an increase of 2.17% over $12,880m in 2011. As a result, the company reported gross margin and operating margin of 60.05% and 11.36% in 2012, as compared to 58.62% and 11.61% in 2011.

Strength - Strong Wireline Network

Verizons strong wireline network enables it to serve a wider customer base. In 2012, the company expanded the capacity of its global Internet network, through connecting the major cities in the US and the different routes in Europe and Asia with the help of networks delivering 100 gigabits per second (Gbps) speeds. The company's all-fiber FiOS network, which is far more efficient than the legacy copper network, passes through 14.2 million homes and provides a high-quality platform for delivering broadband services, streaming video and other high-bandwidth services. FiOS now reaches around two-thirds of the companys wireline footprint. The company provides broadband and entertainment service to the mass market, while maintaining the level of network reliability of telephony network. The Mass Markets unit provides local exchange, long distance, broadband services, and FiOS TV services to residential and small business subscribers. For mass market, the company offers video, data and voice services. In global enterprise it offers Infrastructure and Cloud services and various security services. The company's data services include high-speed digital data offerings such as Ethernet and Synchronous Optical Network, as well as core data circuits, such as DS1/DS3.

Strength - Wireless Capacity and Coverage

The company has a substantial wireless capacity and coverage in the US. Its network is among the largest in the US, with licensed and operational coverage in all of the top 100 most populous U.S. metropolitan areas. As of December 31, 2012, Verizon Wireless had about 98.2 million retail connections. The company's network technology platforms include, 4G LTE and 3G CDMA. As of December 31, 2012, the company's 4G LTE network covered a population of about 273 million in 476 markets. 4G LTE provides higher throughput performance and improved efficiencies for data services than 3G technologies. At the end of fiscal 2012, 50% of the companys wireless data traffic was on its 4G LTE network. Its 3G CDMA network is based on spread-spectrum digital radio technology. CDMA-1XRTT technology is deployed in virtually all of the cell sites in the company's 3G CDMA network. In addition, the company deploys EV-DO, a 3G packet-based technology intended for high-speed data transmission in all of the cell sites in 3G CDMA network. In 2012, the company along with joint venture with AT&T Inc, and T-Mobile USA, Inc., launched a mobile commerce platform, namely, Isis. It enables customers to pay for point-of-sale purchases with the help of their mobile phones using near field communications technology. The company's leadership position in wireless capacity and coverage has strengthened its business operations.

Verizon Communications Inc. - Weaknesses Weakness - Supplier Dependency

The company depends on various key suppliers and vendors for providing equipment and services including switch and network equipment, handsets and other devices and equipments required to operate its business and provide products to its customers. The companys handset and other device suppliers rely on one vendor for manufacturing and supplying critical components used in their devices. If these suppliers or vendors fail to offer equipment or service on time or fail to meet the companys performance expectations, Verizon may not be able to offer products and services required by its customers The company also may not be able to continue in maintaining or upgrading its networks. In addition, the companys business may get disrupted if it requires or chose to replace the products or services of one or more major suppliers with products or services from another source. Any such disruption could increase its costs, decrease its operating efficiencies and may have a material adverse effect on its business and financial condition.

Weakness - Decline in Liquidity

Verizons limited liquidity position could affect its short term funding plans. In 2012, the company's total current assets decreased with 31.36% to $21,235m, from $30,939m in 2011. The decreased current asset burdened its working capital. The company reported working capital deficit of $5,721m in 2012, as compared to working capital of $178m in 2012. The decline in current asset could be attributed to decline in its cash and equivalents from $13,362m in 2011 to $3,093m in 2012, a decline of 76.85% compared to 2011. Moreover, the company's trade receivables increased with 6.79% to $12,576m in 2012, as compared to $11,776m in 2011, representing sales on credit. As a result, the company's cash ratio and current ratio declined to 0.13 and 0.78 from 0.45 and 1.00 in 2011 respectively.

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Verizon Communications Inc. - Opportunities Opportunity - Expanding 4G LTE network

The company, a provider of mobile broadband services using 4G Long Term Evolution (LTE) technologies, could increase its revenue due to the speed at which the technology is gaining acceptance. Recent reports suggest that revenue generated from LTE mobile broadband users would surpass $70 billion universally by the end of 2014. Of this, 4G LTE's primary markets, namely, North America, Western Europe, the Far East and China, are expected to account for about 90% of the market. Analysts forecast that mobile commerce and payments, and mobile web would drive mobile broadband and also that the economic crises could have a relatively small impact on it. The company launched its 4G LTE network in December 2010, and as of January 22, 2012, the company deployed this network in 476 markets covering about 273 million people across the US. By the end of 2013, the company expects that its 4G LTE network would be deployed in virtually its entire 3G CDMA network footprint. Also, the company has plans to expand its 4G LTE coverage beyond the existing 3G CDMA footprint through its LTE in Rural America Program. Under this program, the company is working with wireless carriers in rural areas to collaboratively build and operate a 4G LTE network using each carriers network assets and the company's core 4G LTE equipment and 700 MHz spectrum. In October 2012, the company entered into an agreement with Cox Communications in Northwest Arkansas and Fort Smith Area to deliver superior video entertainment, blazingly Fast Internet and 4G-LTE Mobile Accessibility. Moreover, this agreement has widened to Kanas area with the same offerings. The company's deployment of its 4G LTE network would help it to keep pace with network capacity requirements and meet customer demand for higher speeds.

Opportunity - Business initiatives

The company has taken various business initiatives in recent past, which provide future growth potential for the company. In July 2013, the company launched Verizon Live Events to help broadcasters, content retailers, studios and multichannel video programming distributors in meeting rapidly growing consumer demand to watch live events on TV and online. In April 2013, the company launched a solar and fuel-cell energy project which will power 19 of its facilities in seven different states across the US. The company will invest about $100m in project and after completion, the project will generate about 70 million kilowatt hours of its own green energy. In July 2012, the company completed the acquisition of HUGHES Telematics, Inc. (HTI), which will help the company in accelerating growth through the delivery of advanced automotive and fleet telematics and machine-to-machine services. In March 2012, Verizon Wireless, a joint venture between the company and Vodafone Group Plc, purchased the operating assets of Cellular One of Northeast Pennsylvania from United States Cellular Corporation.

Opportunity - Demand for Smartphones

The company could capitalize on the growing demand for smartphones, which is emerging as a major growth opportunity for mobile device manufacturers. According to industry analysts, the global market for smartphones is predicted to reach more than 1 billion units, compared with 675 million units in 2012. The global smartphone sales are expected to grow 33% in 2013. Asia Pacific accounts for 50% of the total global smartphone sales, and the USA and China together could account for 43% of the worldwide smartphone market in 2013. The global smartphone market is dominated by Android, with 61% market share and iOS with 20.5% of the market in 2012. The growth would result from factors including lower product cost, improved handset design and functionalities, the expansion of global mobile email and browsing services, the emergence of 3G and 4G network technologies, and the standardization and upgrades of operating systems. Consumer awareness about the advantages offered by these devices, especially email and e-transactions, would contribute to smartphone business growth even during tough economic times. Considerable demand is expected from developing countries, particularly in Asia-Pacific region, besides North America. Emerging economies including China, India and Brazil are expected to register considerable increase in the usage of smartphones, besides the US and the UK.

Verizon Communications Inc. - Threats Threat - Competition

The company competes in the highly competitive telecommunication services market. In the US, it competes with national wireless service providers such as Sprint Nextel, T-Mobile, and AT&T. In addition, in many markets it competes with regional wireless service providers such as MetroPCS, Leap Wireless, and U.S. Cellular. Verizon Communication expects the competition to intensify due to increasing wireless market penetration levels, regular introduction of new products and services, new market entrants, the development and deployment of new technologies, and the availability of additional spectrum, both licensed and unlicensed, and regulatory changes. The company also competes with resellers, which buy bulk wholesale service from facilities-based wireless service providers for resale. Going forward, with various higher-speed wireless technologies have been deployed by various wireless service providers, and other players in the process of rolling out such technologies developed to meet the growing demand from the customers for wireless communications in both fully mobile and fixed platforms, the competition is likely to be intense. Competition are also likely to increase in the event of smaller, stand-alone wireless service providers transfer licenses to or merge with larger, better capitalized and experienced wireless service providers. Moreover, other participants in the wireless value chain such as data application and content providers and device manufacturers have began to introduce products and services directly to the wireless consumers, instead of offering through the wireless service providers for gaining a share of wireless data revenues. Also, various device makers are increasingly making third-party applications and content available by bundling them with their products. Case in point is Googles open operating system and related applications for mobile devices that have been deployed on phones the company offers. Competition also comes from third parties such as Skype, which are

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now offering alternative means for making wireless voice calls that can be used instead of the wireless providers voice service.

Threat - Rapid Technological Changes

The offerings of the company are characterized by rapid technological changes, which could affect its business operations. To compete effectively with its peers, the company should continually introduce new products that exceed the customers requirements. The introduction of products using new technologies or the adoption of new industry standards can make existing products, or products under development, obsolete or unmarketable. Inability to study the evolving technological landscape could impact the companys competitive position.

Threat - Government Regulations

The company is exposed to regulations and policies of diverse regulatory authorities in the US, which may affect the subsidiaries and affiliates operating in the US. The company has to follow the regulations imposed by the jurisdiction of national and supranational regulatory authorities in the market where service is provided. The adoption of new regulations or changes to existing regulations could increase the costs or reduce operating margins. For instance, its roll out of U-verse TV service has been affected because Federal Communications Act has labeled U-verse as video service, following which, cable TV operators and municipalities want the service to be governed by state and local cable regulation.

NOTE: * Sector average represents top companies within the specified sector The above strategic analysis is based on in-house research and reflects the publishers opinion only

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