What’s next for Verizon? After a gloomy 2022, it’s time to hear the recovery plan.

Verizon Communications Inc. results for the fourth quarter are not a big mystery, but the company’s future path raises many questions.

CEO Hans Westberg has already revealed that Verizon VZ,
-0.89%
generated “positive” subscriber additions for its consumer wireless business during the holiday quarter, which isn’t a big surprise considering the company’s goal was positive momentum, but nonetheless provided some relief to investors due to the loss of subscribers for three quarters in a row.

Verizon will detail how many subscribers it’s acquired when it reports its fourth-quarter results Tuesday morning, but even more important will be the company’s outlook for the year ahead—and possibly beyond.

The company’s current predicament is not necessarily due to its own actions, said Deutsche Bank analyst Brian Kraft. But that doesn’t mean Verizon has easy answers. As the largest player in the wireless pay-as-you-go market in the US, Verizon is vulnerable to subscriber churn. In addition, his established peers are improving their own offerings, while the cable companies are upstart competitors.

“In our view, Verizon’s leadership has not become less effective in running the business; they continued to perform at a high level, but competition improved their operating performance, eroding what was a significant operating advantage for Verizon in a market that was essentially three players,” Kraft wrote in a note to clients. Cable players Comcast Corp. CMCSA,
+1.25%
and Charter Communications Inc. CHTR,
+3.16%
have now made this market more crowded.

What does this background mean for the forecast for 2023? “We expect Verizon’s 2023 guidance to be impacted by the same competitive and macro factors that led to management’s 2022 guidance cut in July,” Kraft continued. At the same time, “the aforementioned pressure appears to be already reflected in the consensus estimates.”

The company must figure out how to balance the various factors that affect subscriber performance. Promotions and price cuts can help bring new customers to a given network and keep new ones on board, but they come at the expense of profits. On the other hand, price increases provide a cushion of profit but may alienate some customers.

Verizon raised the prices of some data plans in the middle of last year and is generally considered a disciplined player in the industry.

“Verizon is transitioning customers to premium unlimited tiers but has struggled to accelerate service revenue growth since last year’s price increase, but this is offset by some retention discounts and promotion-related service revenue amortization,” wrote JPMorgan analyst Philip. Cusick in a recent note to clients.

Additionally, Verizon introduced a new Welcome Unlimited plan last year, which the company says is gaining momentum, but Cusick notes that the $25 per line monthly price is putting pressure on average revenue per user.

He expects Verizon to have a “soft” full-year outlook, “given headwinds to its consumer wireless business, increased competition in the business, and declining legacy wired networks.”

Analyst at Cowen & Co. Gregory Williams wrote that Verizon’s full-year guidance will be “the focus” of upcoming earnings, although he doubts the report will be a catalyst “as investors anticipate a turnaround in the consumer wireless segment (currently mismatched in the wireless segment). market)”.

Verizon’s outlook for the current year is all the more interesting as Westberg shook up the consumer business in late 2022 by announcing he would take over the division, replacing Manon Brouillette, who led the consumer group for less than a year.

To learn more: Verizon stock has had a rough year. Do you need a “decisive” shake-up?

“We are looking for more information about the company’s strategy in the consumer segment and how Hans Westberg hopes to change this segment,” Williams wrote.

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