Layoffs Improve the Outlook of Verizon Stock

Dividend Stocks

During the current decade, the big dream of the biggest phone companies was to get out of the “box” of providing cellular and internet infrastructure and mobile data, and to get into the higher-value world of providing content. The fulfillment of that dream was supposed to boost the companies’ profits and stocks.

Verizon Communications (NYSE:VZ) has now tacitly admitted that the dream was a dumb one, as the company is carrying out mass layoffs of journalists at America Online and Yahoo. Verizon’s content division, now called the Verizon Media Group was, until November, known as Oath. 

Oath Has Been a Drag on Verizon Stock

While Verizon’s spokesmen are spinning about “better execution” on “the best platforms,” the fact is that VZ has already written its media assets down by $4.6 billion, after paying $4.4 billion for AOL and $4.83 billion for Yahoo. 

In its third-quarter earnings report, VZ said that Oath’s Q3 revenue came to $1.8 billion, a run rate well short of the $10 billion in revenue it targeted for all of 2020. That’s just 5% of the company’s total revenues for the quarter, which were $32.6 billion. Even if Oath had been a raving success, it would have represented less than 10% of Verizon’s revenue.

Verizon Is What It Is

When you’re selling data, the price you get for each bit of data is constantly falling, as new equipment makes moving more data cheaper. When you’re selling services, on the other hand, you take a bigger piece of the customer’s dollar. By tying the data to the content, and by killing “net neutrality,” the idea was that Verizon could guarantee itself more profits, boosting Verizon stock.

But many of Verizon’s strategies when it comes to content have failed, so the profits and the large advances of VZ stock haven’t materialized.

For example, a big piece of what VZ bought with AOL was AOL’s adtech. That adtech unit has failed, despite the government allowing Verizon’s internet service to share user browsing data with its adtech unit and despite the end of net neutrality, which lets internet service providers discriminate on behalf of their own services.

So now  VZ is what it always was, a capital-intensive utility. The nature of that utility has changed in this century, with Verizon selling wired networks and spending $130 billion to get 45% of its wireless business back from Vodafone Group (NYSE:VOD). Since that deal closed five years ago, VZ stock is up 20% and Vodafone is down 57%.

The Bottom Line on Verizon Stock

As a utility, Verizon stock needs to be valued based on the dividend of VZ stock, which has risen from 53 cents per share to just 61 cents during those five years. Verizon stock has a rather high yield of 4.17%, but VZ stock is not delivering capital gains, largely due to the company’s decision to become a content provider.

AT&T (NYSE:T) is in the same business as Verizon, but it chose to get even more heavily into content, buying Time Warner to acquire its HBO and CNN franchises. Since AT&T closed that deal last June, AT&T stock is down 7.6% while Verizon stock is up 21%.

Verizon is trying to cauterize its self-inflicted wound, so it can once again be seen for what it is. Investors can now buy VZ stock  with confidence, since they at least know what they’re getting.  AT&T has yet to take a similar step.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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