Monday, July 27, 2009

Verizon's Net Falls; Revenue Defies Trend

Verizon Communications (VZ) reported a 21% quarterly decline in net income, although the wireless behemoth's sales increased by 11.3% compared to the same quarter a year ago. The Company's results are essentially inverse to what we have seen coming out of of corporate America for the current quarter, as Verizon's net was adversely affected by extraordinary/one time items, despite logging sustainable revenue growth. This contrasts with the new, popular way of doing business, which involves draconian costs cuts and the fire-sale of critical components of the business (Citigroup) in order to hand Wall Street the EPS numbers they are pining for. Needless to say, revenue growth is not customary in the current economic environment.

The fact that Verizon was able to add 1.1million new subscribers during the quarter, in addition to increasing the top-line, would seem to indicate that cell-phones have emerged as a highly recession resistant luxury item. The fact that anybody would argue with us concerning cell phones status as a "luxury item" only proves our point further. Communicaion in and of itself is obviously not a luxury, however, when a 15 year old girl has the latest Blackberry storm International Edition, something has gone clearly gone awry with the country's ability to prioritize it's spending.

From an investment standpoint, Verizon fits nicely within our parameters for an attractive company: It is generating massive amounts of cash - each second - and it's product has drifted into the realm of non-discretionary purchases. As always though, these are just our parameters, and aren't necessarily suitable for everyone.

Disclosure: no position in VZ Sphere: Related Content

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