VZW Value Reflects Law of Mobility?

Apparently, Vodafone has turned down Verizon’s offer of $40B for the 45% of Verizon Wireless owned by the British company. Simple math tells us that, at this price, the 55% of VZW owned by Verizon would be worth $49B. Some analysts believe that Vodafone may hold out for $50B or more. That would raise the value of Verizon’s stake to $61B.

The market cap for all of Verizon is about $101B, meaning that the wireline part of Verizon is worth somewhere in the $40B – $52B range. Again, simple calculations tell us that a dollar of 2005 wireline revenue (total $42.8B) translates to a market value of 0.9x – 1.2x, while a dollar of 2005 wireless revenue (total $32.3B) translates to a market value of 2.8x – 3.1x. In other words, a dollar of wireless revenue generates about three times as much value for Verizon shareholders as a dollar of wireline revenue.

This can be explained by describing a number of factors about Verizon’s wireline and wireless operations. For example, wireless is growing while wireline is relatively flat. Profit margins on wireless are also higher than wireline. Wireline is also under tremendous competitive pressure on a number of fronts, including from Verizon’s own wireless services. Finally, Verizon’s stock has been under pressure largely due to the company’s huge investment in building out a broad and deep fiber network to strengthen the wireline business’ competitive position.

But it’s a whole lot easier to simply recognize that the Law of Mobility holds – Verizon stock is more valuable because it has mobility built in!

One Response to “VZW Value Reflects Law of Mobility?”

  1. […] Back in March, I used the reported price being negotiated by Verizon and Vodafone for the portion of Verizon Wireless owned by Vodafone.  I used those numbers to calculate the premium value for Verizon Wireless compared to the non-mobile part of Verizon. […]

Leave a Reply