Verizon Stock Drops as Revenue Miss Overshadows Profit Beat and Raised Guidance

Verizon Communications Inc. (VZ) shares declined on Tuesday after the company reported third-quarter results that highlighted a growing divergence between its profitability and top-line growth. While the telecommunications giant beat profit estimates, posted strong subscriber gains, and raised its full-year guidance, it missed revenue expectations for the third straight quarter, raising investor concerns about the sustainability of its performance.

Profitability Strong, But Sales Lag

Verizon reported adjusted earnings per share of $1.31, surpassing analyst estimates of $1.28, according to data from Investing.com. The company's profitability was bolstered by a record adjusted EBITDA margin of 40.2% and its strongest quarterly free cash flow since 2020 at $7.8 billion.

However, the company's revenue came in at $34.31 billion, short of the expected $34.77 billion. This marks the third consecutive quarter that Verizon has missed revenue forecasts, indicating that its recent earnings growth has been driven primarily by cost controls and pricing discipline rather than an expansion in sales.

Subscriber Growth and Outlook Raised

A significant bright spot in the report was robust subscriber growth. Verizon added 406,000 postpaid subscribers, nearly doubling estimates. The addition of 137,000 net accounts marked the company's best performance on that metric in over a decade.

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Buoyed by its operational performance, Verizon raised its financial outlook for the third consecutive quarter. The company now expects full-year adjusted EPS growth of 7% to 7.5%, up from a previous forecast of 6% to 7%. It also guided for full-year postpaid phone net additions of 1.1 million to 1.2 million and free cash flow growth approaching 12%.

Market Reaction and Lingering Concerns

Despite the positive metrics, investors focused on the weak revenue, sending Verizon's stock down 3.82% to close at $42.96 on October 26. The market reaction suggests skepticism about whether profit growth can be sustained without a corresponding increase in sales.

Lingering concerns for investors include a slower service revenue growth pace compared to peers and unresolved competitive threats from satellite internet providers like SpaceX's Starlink. Following the report, Scotiabank cut its price target on Verizon to $50 from $52, while maintaining a Sector Perform rating. The upcoming fourth-quarter results, particularly the revenue figures, will be a key test of whether the company can align its sales growth with its improving profitability.