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Verizon's (VZ -6%) Q2 numbers were relatively healthy across the board, delivering adjusted EPS in line with consensus, topping retail postpaid phone sub estimates, and reiterating its FY24 guidance. The telecom giant's total wireless business (including Consumer and Business wireless) was solid overall, registering a decent 3.5% jump in revenue yr/yr. Management also reiterated that most pricing churn is in the past, leaving its FY24 consumer postpaid phone churn outlook unchanged at flat to slightly better yr/yr.

Given this context, why is Verizon's reception so poor today?

• At $1.15 per share, Verizon reported no earnings upside in Q2. While the company is not known for its huge beats, not having topped estimates by over $0.07 in five years, the market may have been anticipating a slightly better result after coming off a $0.03 beat in Q1.
• Meanwhile, revenue growth of 0.6% yr/yr to $32.8 bln was a sliver lighter than analysts forecasted. Like with earnings, Verizon's top-line upside is usually small. Furthermore, Q2 tends to be a seasonally soft quarter. As such, light revenue growth should not be too surprising. However, the issue is what dragged down overall revenue growth.
• In Consumer, wireless equipment revenue fell, partially offsetting solid gains in the segment. Several chip makers and handset OEMs have touched on persistently sluggish smartphone demand as discretionary spending remains suppressed. This environment has equally affected Verizon, which posted a nearly 13% decline in wireless upgrades in Q2 on top of a 21% decline in the same period last year.
  • Another factor was Verizon shedding 624,000 wireless prepaid customers due to the shutdown of the Affordable Connectivity Program (ACP), which also minimally affected postpaid revs and put some pressure on Verizon Fios.
• Likewise, in Business, total revenue moved 2.4% lower yr/yr as weak wireline revenue continued to overpower increases in wireless service revs. Unlike in Consumer, where wireline revenue, i.e., Fios (offered in only a few markets in the U.S.), was flat yr/yr, supported by 24,000 net adds, Business wireline demand has encountered a few setbacks. Last quarter, management predicted around 400 net adds quarter by quarter. The company added that the broadband market started off slow this year but has been picking up gradually.

There was still plenty to hang your hat on in Q2, especially Verizon's postpaid phone net additions of 148,000, a swift return to growth and easily surpassing street estimates. At the same time, fixed wireless is gaining momentum and is on track to reach 4.0-5.0 mln customers within the next few months. The company also continues to project total wireless service sales growth of +2.0-3.5%, adjusted EPS of $4.50-4.70, and CapEx of $17.0-17.5 bln in FY24.

Nevertheless, too many blemishes from Q2 were enough to trigger a sharp pullback today. Concerns about a shaky economic environment that has constantly hindered wireless upgrades and could spur heightened competitive pressures as consumers continue to seek out value may keep Verizon trending sideways in the near term.