Apple Inc. (AAPL): Verizon Communications Inc. (VZ) Is the Perfect Leading Indicator

Apple Inc. (NASDAQ:AAPL)Mobile phones certainly aren’t dying, and re-inventing the internet certainly helps. The key takeaway is that the company has been able to beat analyst estimates, albeit slightly. The earnings report highlights the many changes in the technology landscape that could be of valuable insight for followers of tech stocks going forward.

Quick glance at earnings

Verizon Communications Inc. (NYSE:VZ) grew revenue year-over-year by 4.2%, with the earnings before interest, tax, depreciation, and amortization growing by 12%. The growth prior to depreciation is important as Verizon Communications Inc. (NYSE:VZ) has to report really large depreciation expenses onto its income statement. Verizon’s operating expenses increased by 0.7% over the previous fiscal year as it was able to reduce the cost of services and sales by 3.4%. This improvement in operations along with the growth in revenue helped the company to beat analyst earnings estimates by a couple pennies. Analysts on a consensus basis were expecting earnings to come in at around $0.66 per share. The company was able to report earnings at $0.68 per share.

Segment data

Verizon Communications Inc. (NYSE:VZ)’s wireless segment posted reasonable growth, at 8.6% year-over-year. The performance was primarily driven by the adoption of 4G LTE smartphones. The number of 4G LTE devices increased from 8 million in the first quarter of 2012 to 26.3 million in the first quarter of 2013. The growth in 4G LTE has been fairly spontaneous. The growth is driven by consumers willing to upgrade phones to the iPhone 4 and the Samsung Galaxy S3.

Verizon Communications Inc. (NYSE:VZ)’s fastest growing segment is not the wireless service, but rather FiOS at 15.1% revenue growth. FiOS is basically an internet package that’s faster than traditional cable. FiOS is based on fiber-optic cable, which is faster at transferring data. The company’s growth in revenue shouldn’t come as a surprise as the fastest data package Verizon offers is at 300 MB/s. To put that in perspective it means downloading a 5GB file in 2.2 minutes. According to SpeedTest the average Verizon 4G LTE speed is 14.38 Mb/s. Verizon FiOS is 20 times faster than 4G LTE (hopefully this puts the speeds of FiOS into perspective).

Wide spread adoption of Verizon FiOS can be seen based on the 5.6 million subscriber figure Verizon was able to post in its recent quarterly earnings announcement. The growth in FiOS clearly proves that consumers want faster internet. The demand for internet continues to improve which is impressive, and it proves that other people who want to compete in the space may have a potential market opportunity.

How the data affects peers in the space

Apple Inc. (NASDAQ:AAPL) grew its iPhone sales by 71% year-over-year between fiscal year 2012 and 2011. Analysts are expecting Apple Inc. (NASDAQ:AAPL) to report -1.10% earnings growth for the current fiscal year. However, Verizon was able to grow its 4G LTE mobile offerings by a staggering 228.75% (of course a large percentage of those were repeat customers). However, here’s what’s even more intriguing: Verizon generated 28% new smart phone activations. Which may mean that domestically within the United States the demand for higher-end smart phones is increasing. This may mean that Apple Inc. (NASDAQ:AAPL)’s iPhone growth could be at approximately 20-30%, from a conservative estimate, based on the growth figures Verizon Communications Inc. (NYSE:VZ) was able to report for its 4G LTE services. The iPhone represented $80 billion in revenues for Apple Inc. (NASDAQ:AAPL) at the end of fiscal year 2012, implying that if demand for handsets were to increase by 20-30%, the company could beat analyst estimates by a reasonable margin.

Google Inc (NASDAQ:GOOG) is growing its Google Inc (NASDAQ:GOOG) fiber business. In another article I wrote several weeks ago; I estimated that Google will put a lot of cable providers out of business (Century Link, and Cox Communication). Not only that, I estimated that if Google was to secure 10% of the market through its Google Inc (NASDAQ:GOOG) Fiber service, it could potentially generate $12 billion per year in revenue. Verizon’s FiOS grew revenue by 15% year-over-year, proving to Google that there’s a remarkably large and growing market opportunity for faster internet speeds (I mean who wouldn’t want to download a high definition movie in less than a minute?). Google plans to launch its Google Fiber services in six additional cities in Kansas. Google is launching a sweeping roll out of Google Fiber in Austin, Texas and Provo, Utah. Google believes that its product is going to become a financial success, and based on the encouraging data we got from Verizon’s own fiber-optic service; we can only assume that Google will continue to roll out its internet services throughout the United States.

Conclusion

Verizon Communications Inc. (NYSE:VZ) posted a solid quarter that was able to meet analyst earnings targets. Verizon’s efforts to keep costs under control along with the solid revenue growth of 4.2% allowed net-income to grow by an impressive 24.3% for the current quarter. Analysts anticipate the net-income to grow by 19.50% for the current fiscal year. The company seems to be well on track to meeting those targets which should keep shareholder up-beat on the company’s performance.

Verizon Communications Inc. (NYSE:VZ) offers an impressive 3.94% dividend yield along with solid earnings growth. Investors who want a stable source of income along with stock appreciation should be married to the company. But since we can’t marry companies we’d technically have to buy them.

The article Verizon Is the Perfect Leading Indicator for Apple originally appeared on Fool.com and is written by Alexander Cho.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.