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VERIZON WIRELESS (VZ)      Peter John Rogers
BUSINESS SEGMENTS      Verizon Wireline                     Domestic Wireless• Voice, Internet access, broadband    • Prov...
SEGMENT FACTS          Verizon Wireline                                  Domestic Wireless•   10.7% increase in consumer A...
REVENUES BREAKDOWN"During 2010, total data revenues increased to $19.6 billion. That is $4 billion of data revenue growth ...
4G Long-Term Evolution   “The key transaction was probably in 2007, when we purchased the nationwidespectrum in the 700 MH...
Apple iPhone 4•   Verizon stated that they completely                           •   AT&T tries to buy your affection    so...
Apple iPhone 4•   Verizon stated that they completely                           •   And rumors of an iPhone 5 in March    ...
AT&T AND CHURN       churn | For any given period of time, the number of participants who discontinue their use of a      ...
AT&T AND CHURN       churn | For any given period of time, the number of participants who discontinue their use of a      ...
AT&T A VERIZON CATALYSTClearly AT&T customers have their motivations, and Apple   allegiant customers have no where to go ...
SUB-INDUSTRY OUTLOOK• Fundamental outlook on the industry is neutral with growth opportunity strongly linked to macroecono...
NETWORK NEUTRALITYFCC’s “four principles” of openness—essentially that consumers should be able to access any lawfulconten...
NETWORK NEUTRALITYFCC’s “four principles” of openness—essentially that consumers should be able to access any lawfulconten...
COMPETITORS               •   AT&T: Most obvious and relevant competitor, but on a GSM network, withGSM Network           ...
COMPETITOR MATRIX                               CAGR Total Debt EBITDA                Ticker Mkt Cap                      ...
S.W.O.T. ANALYSIS                   Strengths                                            Weakness•   iPhone introduction i...
STOCK CHARACTERISTICS Price   Mkt Cap   P/Earnings   P/Book   P/Sales   P/Free CF$36.42   102.87B     16.19       2.66    ...
FAIR VALUE FIELD                                                                         EV/Share $57                     ...
MULTIPLES MATRIX                Mkt Cap    P/E    P/B    P/FCF   P/S  Verizon       102.87B   16.19   2.66   6.07    0.97 ...
5 FACTORS                              Weights Estimated Price Weighted PriceDiscounted Free Cash Flows      20%        $5...
DCF SENSITIVITY     •   Calculated WACC is 6.84%, Bloomberg offers 6.94%     •   Terminal Growth rate of 1.5%, a conservat...
OPINION TUG-O-WAR           Bearish Risks                          Bullish Catalysts• Changes in the smartphone share of •...
DIVESTMENT THESIS•   Verizon is poised to grow with the advent of its 4G network, but it has been a    long time coming an...
FINALLYWill Verizon learn from AT&T’s mistakes and keep their network up to par?
Verizon (VZ) Financial Analysis Presentation
Verizon (VZ) Financial Analysis Presentation
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Verizon (VZ) Financial Analysis Presentation

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  • \n
  • AT&T Corp bought the assets of its parent, American Bell Telephone Co. and became the head of the 22 original bell operating companies in 1899.\n\nMajority stake in Western union Telegraph Co. acquired by AT&T in 1910 and subsequently divested in 1913 in order to avoid federal takeover due to monopoly charges\n\n1984 AT&T Broken up and organized into 7 baby bells\n\n\n
  • 1995 AirTouch and Bell Atlantic have a joint venture, PrimeCo\n\n1997 Bell Atlantic acquired NYMEX\n\n1999 Vodafone and Airtouch merger\n\n2000 Bell Atlantic acquired GTE and renamed itself Verizon Communications\n\n2000 Vodafone Airtouch drops Airtouch name\n\n2000 joint venture b/w Bell Atlantic and Vodafone along with PrimeCo. \n\n2008 Alltel bought by Verizon Wireless\n
  • (CDMA) Code Division Multiple Access\n(GSM) Global System for Mobile Communications\n
  • (ARPU) Average Revenue Per User\n(4G LTE) Fourth Generation Long Term Evolution \n\nFiOS Internet was 31% year over year improvement (197K net adds), and a 24% growth in customer base to 4.1m\nFiOS TV was 22% improvement over fourth quarter last year making annual growth over 26% with (182K net adds)\n
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  • Text YES to 11113020 for 1000 free rollover minutes\n
  • Take a closer look at the iCal symbol within the image of the iPhone 4 on the Apple homepage. \nIt says Monday 7th. The next Monday 7th is March (many are predicting a March release for the iPhone / iPad).\n\nNow look at the above image of an older version of the iPhone. The iCal symbol features the date January 9th. The significance of the 9th of January? It was on this date in 2007 that the iPhone was first announced.\n\n
  • Tests as performed by CNET\nChangeWave survey based on 4,050 AT&T iPhone customers\n
  • Tests as performed by CNET\nChangeWave survey based on 4,050 AT&T iPhone customers\n
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  • Transcript of "Verizon (VZ) Financial Analysis Presentation"

    1. 1. VERIZON WIRELESS (VZ) Peter John Rogers
    2. 2. BUSINESS SEGMENTS Verizon Wireline Domestic Wireless• Voice, Internet access, broadband • Provides wireless voice and data video & data, next generation IP services to nearly 91.2 million network services, and long distance. people• Provides services in U.S. as well as • Network covers a population of 150+ other countries approx. 290 million• FiOS TV: 565 all-digital & 125 HD • Operates primarily a CDMA channels, available to approx. 11.7 network as well as a GSM network million homes across 14 states with 90% users postpaid• Partnership with DIRECTV, double/ • Prepaid users make up remaining triple-play offers in non-FiOS 10% of revenues markets
    3. 3. SEGMENT FACTS Verizon Wireline Domestic Wireless• 10.7% increase in consumer ARPU from 4Q • Year-end 2010, 26% of wireless postpaid 2009; FiOS revenues now represent approx. customer base had smartphone devices, up 53% of total consumer revenues. from 15% at year-end 2009. In Q4 2010, more than 75% of postpaid net adds were• 4.1 million total FiOS Internet customers and smartphones 3.5 million total FiOS TV customers. • Verizon launched its 4G LTE network, in 38• 4.3 million high-speed internet customers, a major metropolitan areas covering one-third total of 8.4 million broadband connections of all Americans and in more than 60 commercial airports • Data throughput speeds of up to 10 times faster than when on the companys 3G network • Planned expansion of 4G LTE network to an additional 140 markets by the end of 2011
    4. 4. REVENUES BREAKDOWN"During 2010, total data revenues increased to $19.6 billion. That is $4 billion of data revenue growth in one year. Think about that number, and then you canunderstand our excitement about the revenue opportunity with 4G LTE tablets, 4G LTE, all new 3G and 4G smartphones that are coming to the market." -- Fran Shammo, Verizon EVP and CFO $125,000M $100,000M $75,000M $50,000M $25,000M $0M ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 Wireline Wireless
    5. 5. 4G Long-Term Evolution “The key transaction was probably in 2007, when we purchased the nationwidespectrum in the 700 MHz range, which paved our way for the investment in a superior4G LTE network. We launched LTE in December in 38 major markets, home to a third of all Americans. We will double that in the next 18 months to some 200 million POPs, and we will blanket the country by the end of 2013” -- Lowell McAdam, Verizon President and COO
    6. 6. Apple iPhone 4• Verizon stated that they completely • AT&T tries to buy your affection sold out of pre-order iPhone 4s within two hours, and that those orders exceeded the one-day total of any other device debut in Verizons history• Market estimates of 900K iPhones in use as of the 11th, VZ management estimates 11 million iPhones in ’11• Online mobile advertisement agency Chitika has a way of monitoring what service an iPhone carrier is and is offering live polling• 3.2% Verizon iPhone users (Percentages are a 24-hour rolling average, updated hourly)
    7. 7. Apple iPhone 4• Verizon stated that they completely • And rumors of an iPhone 5 in March sold out of pre-order iPhone 4s within two hours, and that those orders exceeded the one-day total of any other device debut in Verizons history• Market estimates of 900K iPhones in use as of the 11th, VZ management estimates 11 million iPhones in ’11• Online mobile advertisement agency Chitika has a way of monitoring what service an iPhone carrier is and is offering live polling• 3.2% Verizon iPhone users (Percentages are a 24-hour rolling average, updated hourly)
    8. 8. AT&T AND CHURN churn | For any given period of time, the number of participants who discontinue their use of a service divided by the average number of total participants. Churn rate provides insight into the growth or decline of the subscriber base as well as the average length of participation in the service.• 90% of AT&T iPhone customers under contract, but do they want to be?• AT&T current post-paid churn of 1.15% vs. Verizon current post- paid churn of 1.01%• ChangeWave study suggests AT&T could lose 26% of iPhone customers
    9. 9. AT&T AND CHURN churn | For any given period of time, the number of participants who discontinue their use of a service divided by the average number of total participants. Churn rate provides insight into the growth or decline of the subscriber base as well as the average length of participation in the service.• 90% of AT&T iPhone customers under contract, but do they want to be?• AT&T current post-paid churn of 1.15% vs. Verizon current post- paid churn of 1.01%• ChangeWave study suggests AT&T could Only AT&T victories lose 26% of iPhone customers
    10. 10. AT&T A VERIZON CATALYSTClearly AT&T customers have their motivations, and Apple allegiant customers have no where to go but Verizon Graphs produced by ChangeWave Research
    11. 11. SUB-INDUSTRY OUTLOOK• Fundamental outlook on the industry is neutral with growth opportunity strongly linked to macroeconomic factors such as unemployment• Wireline will see growth in areas of broadband connectivity as demand for high speed access grows and is discretionary• Anticipate continued growth in CapEx across the industry to keep up with technological innovation• Resulting in slower bottom line growth as in past quarters• Network Neutrality to be closely watched
    12. 12. NETWORK NEUTRALITYFCC’s “four principles” of openness—essentially that consumers should be able to access any lawfulcontent or service from any lawful device—enshrined as law . The proposal would also prohibit paid prioritization of traffic, meaning broadband operators would be barred from granting preferentialtreatment to particular applications or service, such as those willing to pay for better performance.” -- DigitalTrends.com• Verizon & Google partner to draft proposal for Net Neutrality to be adopted by FCC• Verizon now suing because FCC overstepped their authority?• Verizon now also secretly unveils new policy to “cap” uncapped data transfers for the top 5% of data users as a temporary punisment
    13. 13. NETWORK NEUTRALITYFCC’s “four principles” of openness—essentially that consumers should be able to access any lawfulcontent or service from any lawful device—enshrined as law . The proposal would also prohibit paid prioritization of traffic, meaning broadband operators would be barred from granting preferentialtreatment to particular applications or service, such as those willing to pay for better performance.” -- DigitalTrends.com• Verizon & Google partner to draft proposal for Net Neutrality to be adopted by FCC• Verizon now suing because FCC overstepped their authority?• Verizon now also secretly unveils new policy to “cap” uncapped data transfers for the top 5% of data users as a temporary punisment
    14. 14. COMPETITORS • AT&T: Most obvious and relevant competitor, but on a GSM network, withGSM Network approximately 95.5 million wireless customers and original iPhone issuer • T-Mobile: German wireless provider operating a GSM network in the U.S. with approx. 34 million wireless customers. Provider of 9K+ “HotSpots”, once being the free wi-fi provider for Starbucks, lost to AT&T in 2008 • Sprint Nextel: A CDMA network provider including Boost mobile, operating on pre and post-paid subscription basis with approximately 56 million wireless customers. Sprint is also working on building a 4G networkCDMA Network • U.S. Cellular: Operates a CDMA network with 6.2 million U.S. customers. Plans to operate in a GSM LTE environment for its future 4G network • Metro PCS: CDMA as well as a 4G network with 8.1 million subscribers. • Leap Wireless: Parent company of Cricket and Jump Mobile with 4.5 million wireless subscribers operating a CDMA an EV-DO network
    15. 15. COMPETITOR MATRIX CAGR Total Debt EBITDA Ticker Mkt Cap ROE Div Yld Rev 5Yr to Equity Margin Verizon VZ 102.87B 8.9% 60.7% 29.1% 11.9% 5.3% AT&T T 168.29B 23.2% 58.9% 26.6% 18.0% 6.0%Sprint Nextel S 13.74B 2.5% 138.8% 17.4% -- --U.S. Cellular USM 4.19B 7.2% 24.5% 19.6% 4.6% -- Metro PCS PCS 4.63B N/A 174.1% 27.2% 9.0% --Leap Wireless LEAP 1.09B 22.8% 239.2% 20.6% -- --
    16. 16. S.W.O.T. ANALYSIS Strengths Weakness• iPhone introduction is a catalyst for wireless • Owned as a subsidiary of Vodafone and talks growth in addition to 4G LTE network of a parent dividend have been rumored• FiOS gaining momentum and replacing older • Large influx of new 4G devices may cost network revenues more than anticipated by management Opportunity Threats• The communication industry is growing and • The slowed recovery of the economy which demand for high speed connections are translate in reduced discretionary spending increasing • AT&T and Verizon differentiate mainly due to• Opportunity to capture AT&T as churn rates contracts, phone availability and signal quality increase
    17. 17. STOCK CHARACTERISTICS Price Mkt Cap P/Earnings P/Book P/Sales P/Free CF$36.42 102.87B 16.19 2.66 0.97 6.07
    18. 18. FAIR VALUE FIELD EV/Share $57 Current Price $36.4 Overall Target $35.4 $40 $75 DCF Analysis (6.84% WACC, g 0-2.5%) $16.5 $39 Multiples $26 $38 52-Week$10 $20 $30 $40 $50 $60 $70
    19. 19. MULTIPLES MATRIX Mkt Cap P/E P/B P/FCF P/S Verizon 102.87B 16.19 2.66 6.07 0.97 AT&T 168.29B 12.87 1.47 10.67 1.30Sprint Nextel 13.74B -- 0.84 4.88 0.40U.S. Cellular 4.19B 27.04 1.21 16.30 0.99 Metro PCS 4.63B 21.84 1.84 36.20 1.11Leap Wireless 1.09B -- 0.99 -- 0.45 Averages 20.58 1.27 17.01 0.85
    20. 20. 5 FACTORS Weights Estimated Price Weighted PriceDiscounted Free Cash Flows 20% $57.10 $11.42 Price / Earnings 20% $29.10 $5.82 Price / Book 20% $16.60 $3.32 Price / Free Cash Flows 20% $35.40 $7.08 Price / Sales 20% $38.70 $7.74 Equal Weighted per share $35.38
    21. 21. DCF SENSITIVITY • Calculated WACC is 6.84%, Bloomberg offers 6.94% • Terminal Growth rate of 1.5%, a conservative estimate Growth Rate 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 6.84% $39.67 $44.57 $50.31 $57.12 $65.33 $75.44 $88.18 7.0% $37.91 $42.56 $47.98 $54.39 $62.07 $71.47 $83.21 7.5% $32.89 $36.86 $41.44 $46.79 $53.10 $60.68 $69.95 8.0% $28.48 $31.91 $35.83 $40.34 $45.62 $51.85 $59.32WACC 8.5% $24.59 $27.57 $30.95 $34.81 $39.27 $44.47 $50.61 9.0% $21.12 $23.73 $26.67 $30.01 $33.82 $38.21 $43.34 9.5% $18.01 $20.31 $22.89 $25.79 $29.08 $32.84 $37.17 10.0% $15.20 $17.25 $19.53 $22.07 $24.93 $28.17 $31.88
    22. 22. OPINION TUG-O-WAR Bearish Risks Bullish Catalysts• Changes in the smartphone share of • Verizon appears to have the most wireless subscribers leads margin loyal customers amongst the pressure and higher costs to providers, highly attributable to the maintain advertised connection quality of their network speeds • Almost as many subscribers if not as• Wireline is likely to continue to lose many on any certain day as AT&T the foundation of home phones with availability to nearly the entire over time across the industry mobile U.S. market• Management has shown interest in • New devices like iPhone 4, tablets buying out Vodafone, although the and phones for 4G and FiOS will outcome may be at the expense of continue to take advantage of shareholders or the network technological trends
    23. 23. DIVESTMENT THESIS• Verizon is poised to grow with the advent of its 4G network, but it has been a long time coming and even competitors like T-Mobile are entering the arena.• Net Neutrality could work in favor of VZ, as well as their competitors. VZ & Goog proposition could ultimately tarnish the providers reputation upon implementation• iPhone 4 and release of 4G definitely already priced into VZ
    24. 24. FINALLYWill Verizon learn from AT&T’s mistakes and keep their network up to par?
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