(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA. Profitability data sourced from Fidelity. Rebecca owns shares of AMZN.)
The Google vs. Apple vs. Amazon rivalry is picking up speed and moving on to some serious next-level competition: On the same day Google launches its beta music service – a strike against Amazon and Apple – rumors emerge of Amazon releasing a smartphone in 2012 – a strike against Apple and Google. It all seems like one complicated game of rock-paper-scissors.
Breaking it Down
Rumors came out suggesting an Amazon smartphone can be expected as soon as the fourth quarter of 2012, according to Citigroup, citing its supply-chain channel checks in Asia. The move appears a logical next step as Amazon’s (AMZN) Kindle Fire is anticipated to succeed as a low-price contender to the tablet market, including Apple’s (AAPL) famous iPad.
Taking on the mobile media market simply appears to be the company’s next frontier of consumer products. Their success would presumably cut into Google’s Android and Apple’s iPhone market shares. Analysts estimate that the phone will sell for about what it costs to make, around $150-$170.
Meanwhile, Google’s (GOOG) beta online music store, with 13 million songs and counting, aims to take audio entertainment market share from Apple and Amazon. However Google faces the small issue of not having a major record label or a contract with Warner Music, a major label whose many popular artists include Led Zeppelin and Prince.
Analysts say selling online music is unlikely to give a large boost to Google’s revenues, and that the move into the music market is mainly to ensure that its Android market has the same advantage and seamless media experience as its competitors.
Google Music is therefore considered a “work in progress.” To help jump-start the new music store, Google said it will offer one free song for consumers to download every day and allow consumers to share purchased songs with friends on the Google+ social network.
Right now Google’s Android is the world’s number one smartphone operating system, with 43% of smartphone users. Apple, in second place, controls a 28% share of the market while the other 29% is broken down between BlackBerry (RIMM), Windows, and other providers. If Amazon can enter the market with the competitive power of Android and iOS platforms, consumers can expect to see some serious price competition.
So, will price competition between tech giants eat away at wireless communication companies? Or will shifting market dynamics create new profit opportunities?
To help you explore the idea, we identified three of the most profitable wireless communication stocks. All of these stocks have outperformed their competitors, based on the gross, operating, and pretax profit margins.
Use this list as a starting point for your own analysis.
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List sorted alphabetically.
1. Mobile Telesystems OJSC (MBT): Provides telecommunications services primarily in the Russian Federation, Ukraine, Uzbekistan, Turkmenistan, Armenia, and Belarus. TTM gross margin at 70.45% vs. industry average at 61.2%. TTM operating margin at 22.39% vs. industry average at 21.77%. TTM pretax margin at 17.02% vs. industry average at 15.55%.
2. USA Mobility, Inc. (USMO): Provides wireless communications solutions to the healthcare, government, enterprise, and emergency response sectors in the United States. TTM gross margin at 66.92% vs. industry average at 61.15%. TTM operating margin at 28.7% vs. industry average at 22.13%. TTM pretax margin at 26.51% vs. industry average at 15.72%.
3. Vivo Participacoes S.A. (VIV): TTM gross margin at 60.71% vs. industry average at 50.23%. TTM operating margin at 18.8% vs. industry average at 15.56%. TTM pretax margin at 19.89% vs. industry average at 13.07%.