(Reuters) - Verizon Communications Inc wireless subscriber growth was slower than expected in the quarter before the latest Apple Inc iPhone launch, but was still ahead of its biggest rival.
Verizon Wireless, its mobile venture with Vodafone Group Plc, added 882,000 subscribers in the quarter compared with the average analyst expectation for 1.04 million from eight analysts contacted by Reuters.
But its shares barely moved after the news. Stifel Nicolaus analyst Chris King said the results looked strong considering that the No. 1 U.S. mobile provider’s biggest rival AT&T Inc announced less than half as many new subscribers in its quarterly report the day before.
“It’s difficult to complain about (subscribers),” he said. “It’s going to be so much better than everybody else‘s. They’re still continuing to take market share.”
Analysts also noted that Verizon Wireless handily beat their wireless profit margin estimates -- a record 47.8 percent margin based on earnings before interest, tax, depreciation and amortization as a percentage of service revenue.
This was partly because lower smartphone sales helped reduce its costs for the quarter as Verizon and its rivals all pay subsidies to force smartphone buyers to commit to two-year service contracts.
King said that a financial report that was otherwise roughly in line with expectations was not enough to impress investors in Verizon, whose shares trade at a big premium to AT&T‘s. Its share price is roughly 14 times analyst estimates for its 2012 earnings per share compared with AT&T’s multiple of 11.5.
“They would have had to knock the cover of the ball to have their shares go up (materially),” King said.
Verizon’s Chief Financial Officer Fran Shammo told analysts on a conference call that Verizon Wireless sold 2 million iPhones in the third quarter but that only 20 percent of its iPhone customers were new to Verizon Wireless.
Verizon said it has a backlog of strong demand for the iPhone 4S, the newest model. But unlike AT&T, it did not provide sales numbers. Shammo said more half its smartphone customers bought phones based on Google Inc’s Android software in the quarter.
Verizon’s profit rose to $1.38 billion, or 49 cents per share, from $659 million, or 23 cents per share, in the year-earlier quarter, the company said on Friday.
Excluding items, Verizon earned 56 cents per share, which compared with Wall Street expectations for 55 cents.
Revenue rose to $27.9 billion from $26.5 billion and was slightly ahead of analyst estimates of $27.88 billion, according to Thomson Reuters I/B/E/S.
The company also repeated its previous expectation for 2011 earnings per share growth of 5 percent to 8 percent from $2.08 in 2010 and revenue growth of 4 percent to 8 percent.
Chief Executive Lowell McAdam noted that the company kept its targets despite storm-related network problems in August that followed a two-week labor strike.
“We faced significant challenges in recent months, yet delivered results that keep us on track to meet our 2011 earnings and revenue guidance, with great momentum expected entering 2012,” he said in a statement.
Because of the storm and the strike, Verizon’s 131,000 net new FiOS TV customers and its 138,000 FiOS Internet additions, lagged well behind its second quarter FiOS additions of more than 180,000 for each service.
However, it promised analysts on a conference call that it would add more than 200,000 customers to each service in the current quarter as it has reduced its order backlog.
The company noted that the storm and the strike also hurt the pace at which it could install business services but it said it still “gained some traction in the quarter beside the additional strain of macro-economic challenges.”
Verizon shares were down 2 cents at $37.08 in morning trading on the New York Stock Exchange.
Reporting by Sinead Carew; editing by Gerald E. McCormick and Derek Caney