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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.

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