) primarily competes with other telecom companies like AT&T (
) and Verizon (
) in the mobile phone business. The company's stock seems to be
recovering after a dip during its last earnings release, indicating
improved investor confidence.
Our price estimate for Sprint's stock
stands at $4.35, which is only slightly above current market
Sprint's main business driver going forward will continue to be
its postpaid business, despite subscriber losses observed over the
past few years. Still, prepaid mobile phone operations remains a
key segment for Sprint's business. Here we examine trends in
Sprint's prepaid share of the US wireless market, and the impact
they could have on the company's stock value.
Can Sprint's Prepaid Market Share Gains
We estimate that
Sprint's prepaid share of the US wireless
increased from about 1% in 2008 to 4% in 2009 driven by its
acquisition of Virgin Mobile, and we project slight market share
gains going forward. We define Sprint's prepaid share of the
US wireless market as the company's total prepaid subscribers as a
percentage of total US wireless subscribers.
A steep rise in market share is unlikely in absence of any
acquisition, however the appeal of Virgin Mobile could still
continue to drive growth. Virgin mobile has introduced attractive
prepaid plans like "Beyond Talk,"
which include unlimited messaging, data, e-mail and web browsing.
Sprint also teamed up with Wal-Mart to offer cheap prepaid mobile
phone services to customers. Additionally, introduction of
smartphones in the pre-paid segment could provide a spark.
Sprint has also improved its customer service ranking, ahead of
AT&T and in-line with Verizon according to the latest consumer
reports, a trend that bodes well for the company's ability to
attract new subscribers.
Upside Exists, but Sprint's Competitors Will Put Up a
Verizon, who lost prepaid subscribers in the last quarter is
looking to leverage the improved demand for prepaid connections.
Verizon recently reduced the base rate of its unlimited prepaid
voice plan to $1.99 per day, down from $3.99. The company also
added Skype mobile support in November to some of the prepaid
feature phones. Additionally, Verizon launched low-cost prepaid
data plans for smartphone users few months back.
Though it will not be a cakewalk for Sprint, the opportunity is
evident. If Sprint can counter the competition effectively with
appeal of its multi-branding prepaid strategy and Virgin mobile's
offerings there could be significant upside to our price estimate
as market share could accelerate beyond our base forecasts.
Sprint's high debt makes it a highly leveraged company and,
consequently, its price estimate is very sensitive to change in
forecasts. For example, if Sprint is able to increase its prepaid
share of the US wireless market past 6% by the end of our forecast
period, as opposed to our base forecast of roughly 5%, there could
be 15% upside to our price estimate.
You can see
the complete $4.35 Trefis price estimate for
Sprint's stock here.