Buffett’s Verizon Investment Signals Confidence as Telecom Industry Changes
Warren Buffett is showing he still carries a lot of influence in the business world. Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.B) bought 11 million shares of Verizon Wireless (NYSE:VZ) stock in the first-quarter of 2014, sending the stock’s price up 1.6 percent, according to Reuters. The Verizon shares are worth an approximate $530 million, and show an indication of confidence from Buffett in Verizon’s future. The news, released in a regulatory filing, brings with it word of several other investment moves by the company, including adding Wal-Mart (NYSE:WMT) shares and reductions in Berkshire’s stake in companies like General Motors (NYSE:GM) and DirecTV (NASDAQ:DTV).
With a $530 million dollar vote of confidence in Verizon, Buffett has without a doubt sent a serious message to the world about where he and his partners see things going over the next several years. But what exactly is it about Verizon in particular that makes it a good investment? The company did acquire the remaining 49 percent stake of Verizon Wireless from Vodafone Group Plc (NASDAQ:VOD) in a deal valued at roughly $130 billion, giving the company a boost in market agility and innovation. According to Fierce Telecom, the move is seen as just one piece in Verizon’s overall strategy to integrate its services.
“When I look at cloud, security, telematics, FiOS, and the mobile assets coming together, I think there will be services that we will see in 12 to 24 months that will allow us to utilize all of those,” said CEO Lowell McAdam during the Goldman Sachs (NYSE:GS) 22nd Annual Communacopia Conference last September. He added that, “I see a future of converged services.”
Verizon looks to also be planing on giving Comcast (NASDAQ:CMCSA) a run for its money, as evidenced by the company’s recent purchase of Intel’s (NASDAQ:INTC) OnCue streaming television service. OnCue delivers cable-like subscription packages to television channel bundles delivered over the internet. The acquisition will allow Verizon to greatly expand its television-distribution abilities, which have been hampered by the small footprint of its Fios service, confined to regions serviced by the company’s fiber optic networks. By giving its television services a shot in the arm, it is investing in its long-term viability in industries beyond cellular service.
Another possibly significant sign out of Buffett’s recent investing activity is the dumping of DirecTV stock. DirecTV, of course, is rumored to be working out a possible merger with AT&T (NYSE:T), giving AT&T some added muscle in the television market. AT&T also stands as the biggest competitor to Verizon in the cellular realm, leading many to think Buffett’s moves indicate he has more confidence in Verizon to be able to trump AT&T over the coming years. Verizon’s CEO says, as explained earlier, that he sees convergence on the horizon, and possibly Buffett sees Verizon more prepared and in a better position to adapt to coming advances.
Buffett has been around the block, and has a feeling for industry trends. The telecom industry’s infrastructure is changing from a simple cable connection to internet streaming of on-demand content, delivered to a growing number of compatible devices. By dumping his shares in DirecTV and opting to point his resources at Verizon, Buffett may be choosing sides in the upcoming telecom battle, once all the dust settles on the Comcast and AT&T mergers. While there’s no way to tell which way things will go until the business shuffling calms down, Buffett has made a clear indication on which way he’ll bet. Investors best take notice.