Verizon Q3: Low-Subsidy Turnaround Gathers Pace as SpaceX Circles

Record margins, 406,000 new phone lines and a third guidance raise show Dan Schulman’s model working, but modest revenue, softer ARPA and SpaceX’s network ambitions test its durability.

Key Takeaways

• Verizon added 406,000 postpaid phones and 137,000 accounts while cutting promotional acquisition costs 41%, evidence that growth no longer depends on expensive handset subsidies.
• Adjusted EPS of $1.31 beat the $1.27 consensus and EBITDA margin reached a record 40.2%, yet revenue of $34.3 billion missed forecasts as equipment sales fell 9% and ARPA slipped 1.9%.
• A third straight guidance raise puts free cash flow growth near 12%, while a $2 billion-plus AWS agreement gives Verizon’s AI fiber ambitions a substantial commercial anchor.

Growth Without the Subsidy Bill

For most of the past decade, Verizon’s problem was easy to describe and hard to solve. It ran a network built for premium customers and kept losing the customers it was built for. A year after Dan Schulman, the former PayPal chief executive, succeeded Hans Vestberg, that pattern has broken. The carrier added 406,000 postpaid phone subscribers in the third quarter, against 44,000 a year earlier, its strongest third quarter in five years. Postpaid accounts rose by 137,000, the best result in more than a decade. The sequence is now long enough to read as a trend: 616,000 additions in the final quarter of 2025, 55,000 in the first quarter of this year, its first gain in an opening quarter since 2013, and 184,000 in the second.

What distinguishes the recovery is what it cost. Promotional spending to acquire customers fell 41% from a year earlier, and the cost of retaining them fell 30%, as Verizon leaned on its Simplicity plans and an expanded loyalty program instead of handset subsidies. Postpaid phone churn eased to 0.94% from 0.98%, and to 0.87% among consumers. The upgrade rate dropped to 2.6% from 3.3%, which saves money and reflects customers keeping devices longer. Over nine months, Verizon has added 645,000 postpaid phones after losing 254,000 in the same stretch of 2025. One detail tempers the celebration. At 34.47 million, the account base sits essentially where it stood a year ago. This quarter repaired a year of attrition; genuine expansion of the franchise has yet to appear in the numbers.

Margins Carry What Revenue Cannot

The income statement shows the trade Verizon has chosen. Total operating revenue rose 1.5% to $34.3 billion, short of the roughly $34.8 billion analysts expected. Most of the gap sits in hardware: wireless equipment revenue fell 9.0% as upgrades slowed and the company stepped back from subsidies, a decline management presents as deliberate. Mobility and broadband service revenue, the measure that best captures the health of the franchise, grew 2.9% to $23.5 billion, extending a steady progression from 1.6% in the first quarter and 2.8% in the second. Price is the softer variable. Average revenue per postpaid account fell 1.9% to $168.08, and core prepaid lost 52,000 phones. Verizon is adding customers at lower price points and accepting the dilution that comes with them.

Profitability absorbed that dilution with room to spare. Adjusted EBITDA rose 8.0% to $13.8 billion, and the margin widened to 40.2% from 37.8%, both company records. Selling, general and administrative expense fell 3.5% as the restructuring announced last November, which included more than 13,000 job cuts, worked through the cost base, while lighter subsidies reduced the cost of equipment sold. Further down the statement, the price of a larger balance sheet is plain. Depreciation and amortization rose 10.3%, and interest expense climbed 17.2% to $1.95 billion, reflecting Frontier and a heavier debt load. Net income still advanced 5.2% to $5.3 billion. Earnings per share were $1.25, and adjusted EPS of $1.31, up 8.3%, cleared consensus by four cents.

Fiber, Frontier and the AI Contract

Broadband is where Verizon’s strategy has changed most visibly. The company added 314,000 connections, and the mix has shifted sharply toward fiber: fiber net additions rose to 155,000 from 61,000, while fixed wireless additions fell 39% to 159,000. Fiber connections reached 11.1 million, up 44%, largely because Frontier Communications joined the group in January; the nine-month cash flow statement records $9.5 billion paid for acquisitions, net of cash acquired. Total broadband connections now stand at 17.4 million. Management still expects fiber passings to exceed 32 million by year-end, on the way to a medium-term target of 40 million to 50 million, and a multi-year supply agreement with Corning running through 2032 secures the glass for that build.

The disclosure with the longest reach may be the one with the least to do with phones. Verizon signed an agreement with Amazon Web Services valued at more than $2 billion, establishing a commercial framework for scaling distributed compute behind agentic and generative AI workloads. It extends a relationship that already included the AI Connect long-haul fiber deal of November 2025, and it gives the company’s pitch to hyperscalers a contractual figure investors can underwrite. Capital expenditure guidance of $16.0 billion to $16.5 billion now explicitly includes success-based AI Connect investment. For now, the Business segment remains a margin story rather than a growth one: segment EBITDA rose 13.0% to $1.94 billion at a 27.6% margin, while its mobility and broadband service revenue slipped 0.8%.

Cash, Debt and a Higher Bar

Cash flow remains the foundation of the investment case, and the quarter strengthened it. Operating cash flow rose 2.2% to $11.5 billion. With capital spending down to $3.7 billion from $4.3 billion, free cash flow increased 12.1% to $7.8 billion. Over nine months, free cash flow reached $18.0 billion, up 14.3%, enough to cover $8.8 billion of dividends roughly twice. Verizon has returned $12.8 billion to shareholders this year, including $4.0 billion of share repurchases, and still intends to buy back up to $4.5 billion for the full year while paying a quarterly dividend of 70.75 cents. For a shareholder base built largely on income, that coverage matters more than any single subscriber metric.

The balance sheet is improving, though not quickly. Net unsecured debt fell to $123.7 billion from $128.7 billion at the end of June, and the ratio to adjusted EBITDA stands at 2.3 times, slightly above the 2.2 times recorded at the end of 2025, before Frontier closed. With total debt at $166.2 billion, interest expense rose 19% over nine months to $5.9 billion, a claim on cash that will ease only as deleveraging gathers pace. Against that backdrop, management raised guidance for a third consecutive quarter. Adjusted EPS is now expected at $5.04 to $5.06, growth of 7.0% to 7.5%, with free cash flow growth approaching 12%, or about $22.4 billion to $22.5 billion. The new target of 1.1 million to 1.2 million phone additions implies 455,000 to 555,000 in the fourth quarter alone, alongside service revenue growth of about 4%.

What the Market Is Weighing

The results land on a stock that spent October absorbing a different kind of news. On October 9, Verizon suffered its steepest one-day decline since 2002 after SpaceX agreed to buy nationwide 800 MHz spectrum from Grain Management, a transaction that still requires FCC approval. On October 23, a Bloomberg report that SpaceX was negotiating access to at least 80,000 U.S. cell sites sent AT&T and T-Mobile down nearly 8%, while Verizon fell a more contained 1.19% to close at $44.66. Into the print, the shares traded near 8.5 times forward earnings with a dividend yield above 6%, and the EPS consensus had drifted to $1.27 from about $1.29 three months earlier. Expectations were modest, and on earnings, cash flow and subscribers, Verizon cleared them.

The quarter settles some questions and sharpens others. Verizon outgrew AT&T in phones this period. AT&T reported 379,000 postpaid phone additions and 0.92% churn on October 21, though its wireless service revenue rose 5.0%, a faster pace than Verizon’s 2.9% service growth. Schulman has argued that satellite operators cannot compete with terrestrial networks in the urban and suburban markets that generate nearly all of Verizon’s revenue, and on Monday he described the company as “only one year into a multi-year growth story.” The next tests are specific: service revenue growth near 4% in the fourth quarter, the return to ARPA growth management has signaled for 2027, and proof that low-cost customer acquisition holds as SpaceX assembles the components of a fourth network. Verizon has shown it can grow without subsidizing its way there. The harder task is to grow without discounting.