Verizon raises guidance for a third time and signs a $2 billion AWS deal, but its stock falls 2.6%

Verizon reported third-quarter results Monday morning and raised its full-year forecast for the third quarter in a row, according to its earnings release on SEC EDGAR. Reuters and the Wall Street Journal also led with the guidance raise and a new agreement with Amazon Web Services valued at more than $2 billion. Verizon shares were down 2.6% at $43.49 at 10:52 AM ET, per Nasdaq. We have not found a stated reason for the drop; Bloomberg's headline on the report said competition fears persist.

The quarter in numbers

The new full-year guidance puts adjusted EPS at $5.04 to $5.06 and postpaid phone net additions at 1.1 to 1.2 million. Free cash flow growth is now expected to approach 12%, up from 9% to 10%.

What the headline leaves out: how the growth was bought

A jump in customer additions usually means a company spent heavily on deals. Verizon says the opposite happened. Its promotional cost of acquisition fell 41% from a year earlier and its promotional cost of retention improved 30%. Equipment revenue dropped 9.0%, which the company ties to fewer upgrades and a decision to cut device subsidies. Overall postpaid phone churn improved 4 basis points to 0.94%.

That matters to anyone who buys phones and plans for a business. If Verizon keeps cutting subsidies, the sticker price of a device is more likely to be what you pay. The release does not say what plan prices will do, so we are not drawing a conclusion about them.

The 820% jump also flatters the comparison. Taking Verizon's own figures, a gain of more than 820% on 406,000 implies a year-earlier total of under 45,000, so the percentage is large mainly because last year's base was small.

The AWS deal is a framework

Verizon describes the AWS agreement as valued at more than $2 billion, a commercial framework to scale distributed computing for AI workloads, and the release ties it to Verizon's fiber network. The release does not say how much revenue it adds in a given year or how much of the $2 billion is committed. Capital spending guidance stays at $16.0 billion to $16.5 billion, including what it calls success-based investment for AI Connect.

Balance sheet and the earlier selloff

Net unsecured debt fell to $123.7 billion from $128.7 billion at the end of June, a $5.0 billion drop, and net unsecured debt was 2.3 times adjusted EBITDA. Verizon returned $12.8 billion to shareholders in the first nine months and expects to repurchase up to $4.5 billion this year.

Earlier this month the stock had its worst day since 2002 after SpaceX said it was buying spectrum; see our October 9 market close. Our chart shows the shares 15.6% below their September 15 closing peak. The quarter does not answer the competition question that selloff raised.

Sources: Verizon 8-K and Exhibit 99 on SEC EDGAR; Reuters, WSJ and Bloomberg coverage; Nasdaq quote at 10:52 AM ET. Percent changes not attributed to Verizon are Chronicle arithmetic. This is market information, not investment advice.