Why did mobile subscriber growth beat expectations?

  • In the third quarter of 2026, Verizon added a net 406 thousand postpaid phone subscribers, exceeding Morgan Stanley’s previous forecast of 193 thousand. The bank believes the flexible, transparent Simplicity plan, which does not include device subsidies, attracted customers and helped the company enter the market for accounts with 1 to 2 lines, where its coverage had previously been weaker.
  • Alongside the growth, acquisition costs fell approximately 41% year over year, and retention costs declined approximately 30%. However, average revenue per account (ARPA) still fell approximately 2% year over year, although it rose slightly sequentially; more single-line and two-line accounts affected the account revenue mix, while the new business is incremental in value when measured by customer cohort and per line.
  • Morgan Stanley raised its forecast for 2026 postpaid phone net additions by 154 thousand to 1.15 million, but lowered its fourth-quarter net additions forecast in light of management guidance.

How were the financial results, and by how much was full-year guidance raised?

  • Third-quarter mobile and broadband service revenue rose approximately 2.9% year over year, and adjusted EBITDA grew 8%, broadly in line with Morgan Stanley’s expectations. Free cash flow was $7.801 billion, approximately $1.6 billion above the bank’s forecast; capital expenditure was also approximately $400 million below expectations.
  • The company raised its 2026 adjusted earnings-per-share guidance from $4.99–$5.04 to $5.04–$5.06, and raised its guidance for year-over-year free cash flow growth from 9%–10% to nearly 12%. Mobile and broadband service revenue growth is expected to be in the upper half of the original 2.5%–3.0% range.
  • Morgan Stanley raised its full-year free cash flow forecast by approximately $400 million to $22.4 billion, but kept its full-year mobile and broadband service revenue growth forecast broadly unchanged at 2.8%.

What additional growth can broadband and AI bring?

  • Third-quarter net additions were 155 thousand for fiber broadband and 159 thousand for fixed wireless access (FWA), both below Morgan Stanley’s expectations. The bank cut its fourth-quarter FWA net additions forecast from 345 thousand to 160 thousand because the company needs to balance network capacity and speed in the near term.
  • Verizon plans to raise monthly fiber fees by $15 as it integrates Frontier’s operations, balancing price and subscriber numbers. Its high-speed FWA offering is planned to use Starry and Verizon technology and millimeter-wave spectrum to provide gigabit service, extending coverage to approximately another 10 million to 15 million households beyond the approximately 40 million to 50 million households covered by fiber.
  • After AI Connect added a $2 billion contract with AWS, its signed dark fiber contracts totaled approximately $4 billion, including a previously announced $1 billion Google contract; these projects will bring capital expenditure in 2027 associated with business success.

Why was the price target lowered despite improved results?

  • Morgan Stanley maintained its Equal-weight rating on Verizon and cut its price target from $52 to $50, equivalent to approximately 6.3 times forward adjusted EBITDA. The bank believes higher interest rates, potential competition from Starlink and deflationary pressure from AI agents could affect market sentiment.
  • The bank believes the company is still executing its strategic transformation and that its valuation discount to peers reflects execution risk; it expects wireless market share losses to continue, albeit at a slower pace than in recent years. Future assessments depend on whether the consumer wireless business can continue to improve and whether fiber expansion can deliver additional growth.