IPhone Sales Help Profit and Revenue at Verizon

Verizon Communications posted strong first-quarter growth in wireless subscribers, helped by sales of the Apple iPhone, but the effect on its earnings failed to impress investors.

With subscriber growth barely beating Wall Street estimates, some analysts complained about profit margins and others said revenue growth was lower than they had hoped at Verizon Wireless, the mobile venture of Verizon and the Vodafone Group.

Verizon Wireless posted net additions of 906,000 subscribers, just slightly ahead of expectations from analysts contacted by Reuters, who had predicted more than 888,000 subscribers.

While Verizon Wireless, the top mobile service, added only slightly more subscribers than it did in the fourth quarter, it was well ahead of its archrival, AT&T, which added 62,000 net subscribers in the quarter.

But a crucial point for investors when comparing the two was that AT&T, even though it no longer had exclusive rights to the iPhone, won more new iPhone customers in the quarter than Verizon.

The expectation had been that hordes of customers would flee AT&T when the Verizon iPhone arrived because popular phones typically experience a surge in sales during the quarter when they are introduced.

“It was a stronger new customer driver for AT&T,” Steve Clement, an analyst at Pacific Crest, said.

Verizon, which put the iPhone on store shelves on Feb. 10, said it sold 2.2 million iPhones by the end of the quarter, compared with the 3.6 million iPhone sales at AT&T, which had the phone for the entire quarter.

About 22 percent of Verizon’s iPhone customers switched from rival carriers, but about 23 percent of AT&T’s were also new to that company. This implies that Verizon won fewer than 500,000 new customers through the iPhone, while AT&T added more than 800,000 iPhone customers from other carriers.

In addition, higher sales of advanced devices like the iPhone came at a high cost for Verizon as its profit margin dipped, Michael Nelson, a Mizuho analyst, said.

Its margin was 43.7 percent, compared with the 46 percent it posted a year earlier, based on earnings before interest, taxes, depreciation and amortization.

While the iPhone helped Verizon raise subscriber numbers, its sales were not significantly better than analyst expectations, as some investors had hoped.

“Over all it was a solid quarter, not necessarily a blowout quarter,” Mr. Nelson said.

Verizon earnings rose to $1.44 billion, or 51 cents a share, from $443 million, or 16 cents a share in the same quarter a year ago, when it shouldered hefty one-time charges.

Revenue rose to $26.99 billion, from $26.9 billion in the year-earlier period; the average analyst expectation was $26.86 billion, according to Thomson Reuters.

Shares of Verizon fell 88 cents, or 2.3 percent, to close at $36.91.