Verizon (VZ) has just revealed that it is facing a dip in its earnings, and one of the main culprits is an unexpected change in consumer behavior.
In its second-quarter earnings report for 2024, Verizon revealed that it generated a total operating revenue of $32.8 billion during the quarter. Even though this is a 0.6% increase from the same time period last year, it falls short of the $33.06 billion analysts estimated, according to LSEG data.
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Wireless customers aren't upgrading to new devices as often
Verizon stated in the report that the revenue growth was “offset by a decrease in wireless equipment revenue due to lower upgrade volumes,” which means that fewer customers are switching out their old phones for newer ones.
During an earnings call that discussed the report, Verizon Chief Financial Officer Tony Skiadas revealed that total upgrades during the second quarter declined by roughly 13% year-over-year.
Verizon CEO Hans Vestberg claimed during the call that the amount of customers upgrading phones has been “a bit low for a while,” and that the increased quality of phones is partially to blame.
“We are going to see what's going to happen in this cycle, I don't feel very worried about it,” said Vestberg during the call. “I feel that we are in a great position to handle it.”
Even though the company is experiencing historically low phone upgrades, Apple's upcoming iPhones, which will include new artificial intelligence features, may help reverse the startling trend.
Higher phone bills are increasing churn
Verizon also told investors during the call that its consumer post-paid phone churn, which is how many wireless customers stopped doing business with the company, was at 0.79% this quarter, which is a slight increase from what it reported during the same quarter in 2023.
“This was in-line with our expectations as we recently implemented several price increases that are expected to generate well over $1 billion in annualized wireless service revenue,” said Skiadas during the call. “We believe the majority of the pricing churn is now behind us and we continue to expect full-year consumer postpaid phone churn to be flat or slightly better than last year.”
Verizon’s most recent price increases took effect in March this year. The price for multiple older Verizon unlimited plans such as 5G Get More, 5G Start, 5G Play More, 5G Do More, etc., increased by $4 a month per line, so it is no surprise that the company is seeing a slight increase in churn.
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Consumers across the nation have been tightening their spending amid record inflation and a rough housing market. One of the main areas that consumers have restricted their spending on discretionary items, including tech products such as phones and computers.
According to a 2023 CNBC and Morning Consult survey, more than half of the respondents said that they have reduced spending on electronics such as phones and computers due to inflation. This was more noticeable among lower-income Americans — two-thirds of that demographic said that they were making cuts to that category.
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