Verizon beats on earnings, but revenue falls short of estimates

Stocks to Watch: October 20, 2016
Stocks to Watch: October 20, 2016

Verizon on Thursday reported quarterly earnings that beat analysts' expectations, but revenue fell short of estimates.

The company posted third-quarter earnings of $1.01 a share on revenue of $30.93 billion. Sales were down 6.7 percent from a year earlier.

Analysts had expected Verizon to report earnings of about 99 cents a share on $31.08 billion in revenue, according to a consensus estimate from Thomson Reuters. Verizon reported profit per share of $1.04 a year earlier.

Shares of Verizon dropped 2.5 in premarket trading immediately after the announcement. The stock was down 2.7 percent at midday.

"Verizon continues to deliver strong financial and operational results in highly competitive markets while positioning itself for future growth," Chairman and CEO Lowell McAdam said in a statement. "While we transform our company in a challenging environment, we have maintained the financial flexibility to invest in our industry-leading networks to better serve customers, add scale to bring innovation to the mobile media and Internet of Things (IoT) markets, and increase dividends for a 10th consecutive year."

The report comes as Verizon prepares to take over Yahoo in a $4.8 billion deal. Last year, Verizon agreed to buy AOL in a bid to build its growth in mobile video and advertising.

The earnings report follows the disclosure of Yahoo's massive data breach, which affected at least 500 million user accounts. Verizon's general counsel said last week the breach could have an impact on the deal.

On a conference call with investors Thursday, CFO Francis Shammo called Yahoo's data breach "extremely large" and said Verizon is still evaluating what the breach means for the deal. He noted that he assumes it will have a "material impact on Yahoo."

A source told CNBC that Verizon is anxious to get more information on the breach so the company knows what asset it's buying. Verizon said it expects to close the deal in the first quarter of 2017, subject to approval by Yahoo shareholders and regulators.

Earlier this week, Yahoo reported earnings that beat analysts' expectations. Yahoo CEO Marissa Mayer said in the earnings release that the company is "working hard to retain" users' trust.

Verizon said it launched its LTE Advanced in more than 460 markets in the third quarter. The company said it intends to be the first to launch a 5G fixed wireless broadband solution in the U.S.

In the latest earnings report, the company said growth continued in new markets in part from strong demand from advertisers.

For the quarter, Verizon said it had 442,000 retail postpaid net additions. That includes 357,000 4G smartphones. Its internet service, Fios, grew 4.4 percent.

CNBC's Jim Cramer said Thursday that pricing wars with phone companies Sprint and T-Mobile could have impacted the company's earnings.

"I see the actions of what Sprint and T-Mobile are doing ... they're so aggressive that it looks like it really cut into Verizon this time," Cramer said on "Squawk on the Street."

Correction: Verizon launched its LTE Advanced in more than 460 markets in the third quarter. An earlier version misspelled the name.

— CNBC's Anita Balakrishnan and Julia Boorstin contributed to this report.