The IoT Business Lurking Beneath Verizon’s Wireless Bread-and-Butter — The Motley Fool

Shares of Verizon (NYSE:VZ) are rallying after reporting a strong showing in the third quarter of 2017. While all the focus is rightly directed at the company’s wireless subscriber base, there is more going on behind the scenes that make this stock an exciting long-term investment.

Data by YCharts.

The skinny on wireless plans

Verizon’s stock has underperformed the market this year as investors have fretted over the business foundation: Wireless subscribers. However, due in large part to the rollout of unlimited data plans to keep up with smaller competitors like T-Mobile (NASDAQ:TMUS), Verizon is back in subscriber growth mode with 603,000 net adds in the third quarter.

Chart by author. Data source: Verizon quarterly earnings.

Highlights from the quarter also included the Fios division, Verizon’s video and internet service, growing revenue by 4.8%. The AOL and Yahoo! media divisions, reorganized as the Oath brand, had revenue of $2 billion. Management said the full integration of the two online media┬ácompanies was ahead of schedule.

The other Verizon business

Over the last few years, Verizon has been quietly acquiring small Internet of Things (IoT) businesses and organizing them into a new operating segment. Organic revenue growth, which excludes any bump from acquisitions made in the last year, was up 13% in the third quarter.

Period

Telematics Revenue

YoY IoT Organic % Growth

Q1 2017

$214 million

17%

Q2 2017

$220 million

20%

Q3 2017

More than $220 million

13%

Chart by author. Data source: Verizon quarterly earnings.

The company can be a bit cryptic in explaining this small department, giving revenue figures for telematics — the connected vehicle and fleet management businesses — but only giving revenue growth percentages for the IoT division overall, which includes telematics.

Telematics growth has seemingly stalled after Verizon bought its way into the industry last year. With annualized revenue of just under $900 million, the company has cut a small piece of the market share pie, estimated to be at just over $7 billion this year. However, estimates say the industry will grow to over $18 billion by 2022. That makes this currently insignificant Verizon segment something to pay attention to.

The overall IoT segment is fuzzy with only an overall percentage to work with. What we do know is that Verizon has made a handful of small purchases

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