Verizon Communications and China Unicom are both giant telecommunications companies in their respective countries. Both of these enterprises make part of a larger global telecommunications network with each being on top notch. Significantly, both enterprises make enormous annual profits, and this is prone to lure investors into putting their money into the business. Nevertheless, before one makes the decision of investing in these companies, there is dire need to look at what they are getting into and evaluate the profitability of the situation. This paper analyses both companies, aiming to identify their position in the market, recent advancements, fluctuation in stock prices, and other that are paramount in the making of a decision to invest.
Verizon Communications deals with the provision of telecommunications services such as voice, video, and data communications in the U.S. (Verizon Communications, 2016). It also provides wireless and wireline communications. Its wireless segment provides communication products and services which include wireless voice and data services (Verizon Communications, 2016). The wireline department, on the other side, provides video, data, and voice communications products and services (Verizon Communications, 2016). They also provide solutions in corporate networking, cloud servicing, security services and also manage both locally and internationally made calls (Verizon Communications, 2016).
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On 23rd Feb 2016, Verizon Communications released its annual report which gave details on the year’s business operations. The annual report indicated an increase in consolidated revenues as compared to the previous years. In 2013, the company registered consolidated revenues amounting to $120.6 billion (Verizon Communications, 2016). This amount increased to $127.1 billion in 2014, and later in 2015 it further increased to $131.6 billion (Verizon Communications, 2016). Additionally, the company also reported having had an increase in operating cash flows from continuing operations. In 2014, the value for this was $30.6 billion, an amount which increased by $8.3 billion in 2015 to become $38.9 billion (Verizon Communications, 2016). The company also recorded a $1.95 increase in reported diluted earnings per share from $2.42 to $4.37 (Verizon Communications, 2016).
On February 2016, the company (trading as VZ on NYSE) was valued at $201.29 billion (Reuters, 2017). In April 2013, Verizon shares traded around $54. The company maintained its shares at that rate of $50 before it slightly dropped in 2015 (Reuters, 2017). In June 2016, the company reached a whopping $54.43 in shares traded (Reuters, 2017).
The growth of the telecommunications market has led to increased competition from service providers. The era of wireless communications has brought a more competitive market structure as opposed to the monopolistic structure experienced in the wireline communication. The price movements of Verizon closely matched to those of their key competitor, AT & T Inc. The company, which runs as T on the NYSE, pulled back Verizon’s returns of 10 years by 12.3 % in 2016 (Verizon Communications, 2016).
China Unicom, on the other side, also deals in almost similar products and services as Verizon given the similar nature of the two. It provides voice, internet, data, and leased line services on an international scale (China Unicom, 2016). It has a vast connection with major telecommunications companies around the globe, and this has made it be able to access every part of the world. China Unicom has over 120 cooperative relationships and over 100 direct partnerships with other operators in over 60 countries worldwide (China Unicom, 2016). This has enabled the company to be able to provide international voice and data services in over 240 countries.
During the first half of 2016, the company reported having bottomed out in service revenue to reach RMB 121.91 billion. This amount was an increase of 1.4% from the previous year’s report and a 6.0% increase from the mid-year report (China Unicom, 2016). The largest source of revenue was from non-voice services which recorded 73.1% of the total service revenue. This was an increase of 4.8% percentage points as compared to the previous year (China Unicom, 2016).
In a move to promote long-term sustainable development, China Unicom came up with some strategies. It started by braving its short-term pressure on profits and strengthening its fundamental capabilities (China Unicom, 2016). Additionally, the company increased in its cost initiatives. During the first half of 2016, the company recorded earnings before interest, tax, depreciation, and amortisation (EBITDA) of RMB41.28 B (China Unicom, 2016). This was an 18.2% year-on-year drop and an 11.5% half-on-half increase. The net profit made was RMB1.43 B, which was a year-on-year drop of 79.6% (China Unicom, 2016). The Chairman, Wang Xiachou, highlighted that the decline in both the EBITDA and net profit was as a result of increased marketing and sales expenses.
In May 2016, China Unicom registered a decline in earnings per share in the first quarter of the year as compared to the same quarter in the previous year. Its stock performance went down by 40.96% which was relatively worse than that of S&P 500’s performance (China Unicom, 2016). Its earning in shares had also been declining over the years, a trend that has been anticipated to continue.
Its return on equity had also decreased slightly as compared to the same quarter of the previous year (The Street Wire, 2016). This decrease in return on equity indicated that there was a weakness in the organisation that needed to be taken care of. The value of the return on equity had registered below the Diversified Telecommunications Service industry and that of the S&P 500 (The Street Wire, 2016). Furthermore, its gross profit margin was also lower than it was desired, averaging at 28.39% (The Street Wire, 2016).
Both companies, Verizon Communications and China Unicom, are major players in the telecommunications industry with a mega influence on the market. Nevertheless, investors need to look at the variables of business operations and how their entrance into business with such companies will impact on their future trading activities. Stock price fluctuations, net profits, net revenues, and the position of the company in the market are all significant areas of consideration.
References
China Unicom. (2016). 2015 Annual Report , (Hong Kong) Limited . Retrieved on 9 February 2017, from http://www.chinaunicom.com.hk/en/ir/reports/ar2015.pdf.
Reuters. (2017). Verizon Communications Inc. (VZ) . Retrieved on 9 February 2017, from http://www.reuters.com/finance/stocks/companyProfile?symbol=VZ.
The Street Wire. (2016). China Unicom (Hong Kong) Stock: Weak on High Volume Today . Retrieved on 9 February 2017, from https://www.thestreet.com/story/13588459/2/china-unicom-hong-kong-chu-stock-weak-on-high-volume-today.html.
Verizon Communications. (2016). 2015 Annual Report . Retrieved on 9 February 2017, from http://www.verizon.com/about/sites/default/files/annual/verizon-annual-report-2015.html.
