Verizon misses targets as more subscribers take advantage of discounts

Verizon, the largest US wireless carrier, missed profit estimates as more new subscribers took advantage of discounts on devices.

Third-quarter earnings of 89 cents a share, excluding some items, missed the average analysts’ projection of 90 cents.

Sales climbed 4.3 per cent to $31.6 billion, the New York-based company said today in a statement, in line with the average estimate of analysts, according to data compiled by Bloomberg.

While competitor T-Mobile US has shed device discounts, Verizon continues to use the promotional prices to lure subscribers into two-year contracts.

Smartphone and tablet markdowns helped Verizon add 1.52 million contract customers, surpassing the average estimate of 1.34 million in a Bloomberg survey of 10 analysts.

"They are a company that has stuck to its guns with a subsidy model that depresses earnings in times of rapid growth," Craig Moffett, an analyst at MoffettNathanson, said today in a research note. " Verizon has resolutely stuck to its premium-priced strategy."

About two-thirds of the new wireless lines were for tablets like the Ellipsis 7, which Verizon sells for $50 and had even given away free earlier this year.

Meanwhile, 12 per cent of new customers signed up for the company's newer smartphone installment plans, which do not require long-term contracts for wireless service. That was lower than the 15 per cent estimate of Phil Cusick, an analyst at JPMorgan Chase.

The margin for wireless service fell 1.6 percentage points to 49.5 per cent, lower than Cusick’s 50.2 per cent estimate. Verizon said it will end the full year of 2014 with a higher margin than last year.

Chief executive Lowell McAdam had already announced that subscriber growth was more than 40 per cent higher than a year earlier. Shares of Verizon fell less than 1 per cent to $48.36 early today.

Bloomberg