The second-largest U.S. mobile service provider
) is dominating the market for
) iPhone 5 sales. The company saw an astounding demand for the new
iPhone, despite two of its rival carriers also offering the
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According to the latest study from ComScore, AT&T leads the
pre-orders for the hot iconic device with about 68% of total online
sales in the first three days. This records the best order ever
received by AT&T for the iPhones. The other two major rivals -
Verizon Communications Inc
Sprint Nextel Corp
) - accounted for just 24% and 8% share of iPhone 5 sales,
AT&T had been the exclusive provider since 2007, when the first
iPhone was launched. However, this uniqueness was lost to the
wireless kingpin Verizon Wireless, a joint venture between Verizon
), in February last year. Despite this loss, AT&T made a new
record for the iPhone 4S in October last year and received more
than 200,000 preorders within 12 hours of the start of booking.
When compared to the aforementioned 68% share of iPhone 5 sales,
AT&T received merely 48% of pre-orders for iPhone 4S in the
first three days and was followed by 35% for Verizon and 17% for
Sprint. This suggests that though AT&T is behind Verizon in
deploying 4G LTE services needed for iPhone 5, the existing
customers, who are eligible for upgrades, are boosting demand for
the new product.
Going by the iPhones' track record, we expect AT&T to gain more
subscribers from the new iPhone 5 and consequently will be raking
in higher revenues. While iPhones are offering a strong growth
momentum, the related high-marketing cost is hurting AT&T's
earnings. The company now has to pay $100 extra per phone to Apple,
when compared to previous iPhone 4S, in the form of subsidy.
Thereby, this lofty subsidy of $400 per iPhone 5 will be dilutive
to the company's earnings for the next several quarters.
According to several analysts, AT&T's wireless EBITDA margin
would decline from 45% in the second quarter to 40.8% in the third
and then 35.7% in the fourth quarter. As a result, 3 out of 27
analysts have revised the third quarter estimates downward over the
last week. The Zacks Consensus Estimate fell by a penny to 63
cents, representing only 4.01% year-over-year growth.
We are maintaining our long-term Neutral recommendation on
AT&T. The company retains the Zacks # 3 (Hold) Rank for the
short term (1-3 months).