Defensive stock: Verizon Communications
Logically, when so many individuals have Verizon as their telecommunications provider, the company’s market share is quite enormous.
Having a market capitalization of 245 billion dollars, Verizon can be definitely a giant, especially in the telecom industry.
Verizon hadn’t been founded like any other company. Although the company was started in 1983 officially as Verizon Communications, its roots go back in time as far as the late 1800s when the first telephone had been invented by Alexander Graham Bell.
Then story starts with AT&T obviously, the story of which can be found in this article. Basically Graham Bell had some people invest in his invention and that’s how AT&T started. It got so big that in the 1980s the government had to take it apart because of the anti-competitive practices.
So AT&T got taken apart but the government did not know what to do with what was left of it. So multiple companies have been formed out of the giant and they, in bulk were named the “Baby Bells“.
7 separate corporations had been formed, many of which had even more subsidiaries and companies underneath. One of these baby bell companies just happened to be Bell Atlantic which itself had consisted of even more telecom companies like New Jersey Bell and C&P Telephone.
Bell Atlantic had to do something and everyone knew it. Not long after the company had merged with NYNEX, another bell formed out of AT&T. And Bell Atlantic had acquired GTC as well.
At some time everyone got really tired of hearing these “bells” associated with a telephone. Bell Atlantic was one of the companies who had soon realized that.
So, in the early 2000s decided to rename itself to Verizon. The company got rid of its “bells” and decided that now was the time to go public.
The company started doing great, it went through the roof along with the internet companies during the dotcom boom, then – crashed. Then as the new century had begun, acquisitions started attracting Verizon more and more.
Some of the more notable acquisitions have been AOL in 2015 and Yahoo! in 2017. These two companies are now a part of Verizon Media. By 2016 there have only been three companies left which originate from the first American telecom company – Bell Telephone Company. Verizon, CenturyLink and Qwest.
Verizon is not only a telecommunications company but a media company as well. Having bought such giant as Yahoo! is a big step into entertainment and media. With Yahoo! Verizon also got Tumblr which cost 1.1 billion dollars.
However, recently Tumblr was sold directly to WordPress for just 3 million dollars. Crazy right? Having the whole Yahoo gives Verizon things like Yahoo Finance and News as well. That means, the income streams from advertising and subscriptions are flooding massively.
Doing such things as buying media and internet companies did not seem reasonable for others like AT&T. And what shows the performance of great or bad acquisitions are nothing else but stocks.
Comparing Verizon stock with AT&T stock clearly shows how much thoughtful moves and acquisitions impact the destiny of a company. AT&T, like Verizon had been in a bubble in the early days of the century but what happened afterwards was more interesting.
AT&T stock had stayed nearly at the same price range for twenty years while Verizon had grown quite rapidly.
The rapid growth was a result of great partnerships and nothing else. Once Verizon got public it made a deal with Vodafone which practically blew up. In a good way. Great partnerships always bring success, no matter what industry one is in.
Tactful investments cannot be exchanged to anything else out there. Verizon did just that and did it well. When a child company, Verizon Wireless had launched Mobile Web, it had given customers access to such sites like Amazon, ESPN, MSN, E*TRADE and more.
Verizon was also one of the first companies to launch 3G internet for its users. That was 2 years after the IPO. This was the point in time when the company had actually started recovering from the dotcom crash and making a lot more profit, having its stock go up nicely.
2004 was an absolutely great year for Verizon as it was replacing AT&T in the Dow Jones Industrial Average stock market index. Also, releasing its first internet-based service called Fios which had gotten insane interest from the already loyal customers. 20% of all users signed up.
Fios internet service had been an immediate success as it was operating in 8 states 2 years after the release. The product was almost what Hulu, Disney+ or Netflix are today.
Later on, Verizon had started swimming in the cyber security waters as it quickly decided to acquire one more company called Cybertrust. As the global economic crisis emerged 12 years ago, Verizon was more than happy to buy something again, this time a lot cheaper.
That something was none other than Alltel, which had helped the company to overthrow AT&T “userwise”.
Verizon had almost become what American Telephone & Telegraph company was in the previous century. It had made its fortune with great company culture, thoughtful investments and partnerships that will continue being the additional drivers for the company.
It had even gone so far as to launch a vehicle diagnostic tool which is used very widely till this day. The project was named Hum. The next companies Verizon had acquired during the same period of time (mid-2010s) were Fleetmatics and Sensity.
Fleetmatics had introduced Verizon to an emerging fleet telematics service that is used for mobile team cooperation and logistics. Sensity, the other company that had been acquired by the corporation soon after, was a provider of LED sensors which had broadened the waters in the Internet of Things industry.
It also has to be mentioned that Verizon obviously had nearly the same amount of lawsuits as companies such as Walmart coming in because of the mass expansion, acquisitions and incredible amount of customers.
Some of these lawsuits had been flooding in from none other than cities or towns themselves. For example, New York City itself had filed a lawsuit against Verizon for “not being able to provide fiber broadband to all households“.
Another flaw of the company was a very recent one, in 2019 to be more precise, when Verizon had started implementing 5G network but made a mistake of using millimeter-waves for the network.
Millimeter-waves are really fast actually, but it is just that they can’t penetrate buildings well, which is a large problem.
Alley, a coworking space company had agreed to get into a partnership with Verizon. That partnership looked more like a merger from the side because the name of these services clearly indicated Verizon’s authority over Alley.
Also, BlueJeans, a video-conferencing company had been acquired by Verizon soon after. It is now quite visible how the corporations does its acquisitions. Companies it had acquired like BlueJeans, Sensity or Fleetmatics are not big companies.
The majority of Verizon’s purchases had been undoubtedly small fish and only few – whales like Yahoo! It shall be because the company just wanted to offer more and more to its customers, starting with telecommunications, ending with entertainment and self-driving cars.
These small companies would not have become what they are now without Verizon taking them under its wing. However, these moves had been really advantageous for the corporation as it was able to nearly steal such companies like Sensity for low prices.
And Verizon clearly knew when was the time to do these acquisitions and how to do them best. A quick reminder that the majority of purchases happened either during the dotcom crash, 2008 great recession or corrections of the 2010s. So the purchases had been well done.
But how did they affect the finances of Verizon and where on the pedestal should we put its stock? Well, to help you imagine where this company is today, let’s take a look into the data. In 2018 this telecom giant was featured as the 16th largest US corporation by revenue in Fortune.
As of today, October 3rd, 2020 the company is arguably worth nearly 250 billion dollars. That is more than twice as large as Boeing, almost 40 times larger than American Airlines.
Verizon is able to do 130 billion dollars in revenue per year as of today and out of those 130 billion, earnings are usually around 20 billion per year. The company is quite popular both from the consumer and the investor’s point of view.
It remains one of the greatest telecom providers in the entire world and the stock is surging, especially during this coronavirus period.
People now, more than ever need the best broadband internet and great connection for work meetings, contacting friends and family, browsing on the web and watching cat videos on Youtube.
That’s exactly what Verizon is the best at, even after massive investments in the Internet of Things, security, anti-spam or auto diagnostics. It is really difficult for other players to compete with Verizon as it has the largest market share in telecom and broadband internet under its wing.
Also, having such dragons as Yahoo! is and will be the advertising and consistent money source for Verizon as the platforms have enormous amounts of influence. Each time one goes to a Yahoo site, its subsidiary he is welcomed with a banner that states Verizon’s advertising disclosure and ownership of the company.
Yahoo! started its journey long ago and the profits have been always a result of successful banner advertising.
The business model and the demand for these banner ads is nearly the same today so one can clearly see that Yahoo! is not going away very soon.
In conclusion, the impact, size and power Verizon has is very, very large. Since the destruction of the original AT&T in the early eighties, Bell Atlantic, or Verizon today has been the sheriff in town.
The company was able to make its way to the top with major acquisitions, partnerships and mergers. It is quite interesting, as mentioned earlier that Verizon had replaced AT&T in the Dow Jones Industrial Average index, as if the son got his fathers job. That seems very ironic. If only stuff like this happened more often.