Leap Wireless International Inc.
(
LEAP
) posted mixed financial results for the fourth quarter of 2011.
Though EPS managed to beat the Zacks Consensus Estimates, revenue
significantly fell below it.
During 2011, Leap wireless restructured its business model
through which it is emphasizing on the high ARPU generating
smartphone customers, while shedding less profitable wireless
broadband subscribers as these users generally place huge load on
its network. Management is hopeful regarding its business strategy
for future subscriber growth.
Nevertheless, precipitous economic volatility in the U.S. is a
major concern since the company is primarily dependent on the
low-income customers, who are very much susceptible to economic
downtrend. Meanwhile, competition in the low-end prepaid wireless
services market has become intensely competitive. We therefore
reaffirm our long-term Neutral recommendation on the stock.
Leap Wireless is operating in an intensely competitive domestic
low-cost prepaid wireless market. Besides, competing directly with
MetroPCS Communications Inc.
(
PCS
), the company has been increasingly challenged by aggressive
roll-outs of competitive price plans by some of its larger rivals
to capitalize on the attractive growth opportunity in the prepaid
segment.
In particular,
Sprint Nextel Corp.
's (
S
) prepaid subsidiary Boost Mobile is gaining market share. Sprint
is gradually increasing its penetration into the prepaid segment
and acquisition of Virgin Mobile U.S.A. further strengthened its
market position.
Moreover,
America
Movil S.A.B.
's (
AMX
) Tracfone has introduced a $45 monthly unlimited voice and text
plan. Increased market penetrtaion of these services have resulted
in customer defection and reduced profit margin.
Recently, the two largest nationwide carriers, viz., Verizon
Wireless and
AT&T Inc.
(
T
) entered the wireless prepaid phone market after the growth rate
of lucrative postpaid wireless market slowed. Verizon Wireless is a
joint venture between
Verizon Communications Inc.
(
VZ
) and
Vodafone Group plc.
(
VOD
).
AMER MOVIL-ADR (
AMX
): Free Stock Analysis Report
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis
Report
VERIZON COMM (VZ): Free Stock Analysis Report
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