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Verizon Communications Inc. (VZ) Q2 2016 May Suffer Because of Strike

Verizon Wireless (NYSE:VZ)
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Verizon Communications Inc. (NYSE:VZ) has admitted that the ongoing strike by a section of its workers can have an impact on the firm’s numbers for the ongoing quarter. In the last 12 months, the firm’s EBITDA stood at $49.08 bn. Out of a total of $131.62 bn in sales, earnings of $17.88 bn were reported. While the firm does have a second line of defense against the unionized workers, in terms of raw numbers their replacement does not make up for even half of those on strike.
Verizon Wireless (NYSE:VZ)

Verizon Communications Inc. Warns Investors About Q2

Q1 2016 earnings were announced before the market opened on Thursday. Subsequently, the stock dropped by more than 3% with the volume of trades standing at nearly double that of the average volume. However, that was not a result of the earnings figures alone. The EPS declared was $1.06. Revenue for the quarter came at $32.2 bn, slightly below the estimated $32.4 bn.

On the positive side, new subscribers were obtained backed by strong tablet sales. The chairman and CEO Lowell McAdam said that the results are an indication of their capacity to compete well while still being network leaders. He also talked about success observed in the initial stages of initiatives in mobile video and IoT (the Internet of Things). In spite of the recently ended quarter being one of a seasonally low volume, 640,000 new retail postpaid connections were sold. This does not include IoT, which comes under wholesale connections. So while the firm had a total of 112.6 mn retail connections, which is a 3.7% rise Y-o-Y, out of them postpaid connections stood at 107.2 mn, which is a 4.4% rise. The management said that revenue had to be traded off because of getting new subscribers on the basis of deep discounts.

On the negative side, investors were advised about the possibility of the strike that can affect the current quarter’s performance. It is precisely this warning that seems to have led to the stock’s bearish day. The strike in question is happening mainly in the wireline division. On the other hand, the US wireless market is known to be a saturated one. Hence, there is not enough room for current players to expand market share or for even new players to enter the market. That naturally results in existing players trying every trick up their sleeve to cause subscribers to make the switch. For instance, Sprint offers half-off discounts for switching and T-Mobile in the US too gives out freebies such as free music and video-streaming plans.

This Strike is Quite Different for the Firm

Throughout its long history, Verizon has been through many strikes of varying intensity. It appears likely that revenue targets for Q2 2016 will be missed. What is worrying is that there are rumors that those who are striking work are also trying to bring in those who are in the wireless business into their fold. The striking workers have been already picketing the retail outlets of the wireless business.

The battle took a slightly ugly turn last week. Striking workers began dishing out flyers to customers entering the retail outlets. Those flyers asked customers to boycott the wireless business. In what seems to be a move to attract sympathy, the flyer also summarizes some of the main troubles. One of such issues is that the CEO allegedly earns more than 200 times the average pay in the firm. Verizon’s spokesperson has dismissed many of the claims as baseless and has contested the union’s claims that the firm never seriously tried to prepare fresh contracts that would be fair to all.

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Hiren Mehta

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