Verizon Communications Inc. (NYSE:VZ) saw its stock climb 1.2% in premarket trading Tuesday, reaching $47.89, building on an 8.0% rally over the previous two sessions. The positive momentum follows the company's second-quarter earnings report, which highlighted a significant improvement in free cash flow even as subscriber growth targets remain a key challenge.
The telecom giant reported free cash flow of $6.4 billion for the second quarter, a 24.4% increase year-over-year. This brings first-half free cash flow to $10.2 billion, providing Verizon with greater financial flexibility. The company returned $9.4 billion to shareholders through dividends and share repurchases, including $3.5 billion in buybacks, representing 92% of its free cash flow.
However, the path to meeting Verizon's full-year subscriber guidance remains steep. The company added 239,000 postpaid phone subscribers in the first half—55,000 in Q1 and 184,000 in Q2. To reach the upper end of its 750,000 to 1 million net addition outlook, Verizon needs to add between 636,000 and 761,000 new phone subscribers in the second half. This implies quarterly additions of 318,000 to 381,000, representing a 73% to 107% increase over Q2's pace.
CEO Dan Schulman expressed confidence in the company's trajectory, stating, "We are accelerating across our key metrics." He attributed the progress to simplified plans, enhanced loyalty programs, and bundled offerings. Despite a 0.7% decline in total revenue, service revenue from mobility and broadband grew 2.8% to $23.4 billion. Adjusted EBITDA rose 7.2% to $13.7 billion, pushing the margin to a record 40.1%.
Equipment sales dropped nearly 20%, declining by over $1.2 billion, as fewer customers upgraded phones and Verizon reduced device subsidies. This shift, while reducing top-line revenue, improved the company's economic profile by lowering customer acquisition costs. Management raised its adjusted earnings outlook to between $4.99 and $5.04 per share and projected free cash flow growth of 9% to 10% for the full year.
Verizon's performance still lags behind key rivals. AT&T (NYSE:T) reported 432,000 net postpaid phone additions in the quarter, while T-Mobile (NASDAQ:TMUS) posted 277,000 postpaid account adds. T-Mobile no longer discloses specific phone net adds, making direct comparisons less precise. The competitive pressure underscores the challenge Verizon faces in closing the gap.
In a strategic move, Verizon secured a fiber deal valued at over $1 billion with Alphabet's Google (NASDAQ:GOOGL). Schulman indicated that additional partnerships could generate billions more in revenue over the coming years. While this opens a new growth avenue, it does not provide immediate support for wireless subscriber targets.
Despite the recent stock gains—up 9.3% since Thursday's close—risks remain. Verizon carries $128.7 billion in net unsecured debt. Failure to achieve the anticipated subscriber growth could challenge the stock's revised valuation. The third quarter will be a critical milestone, with management expecting service growth of nearly 3% in Q3, accelerating to around 4% in Q4. Investors will be closely watching whether phone additions track toward the required pace.
