Verizon (
VZ
) primarily competes with AT&T (
T
) and Sprint (
S
) in the mobile business.
Our price estimate for Verizon stands at $36.62
, in line with market price. However, given Verizon's aggressive
smartphone penetration expectations, this price estimate could
potentially see further upside.
Smartphones encourage high data usage, and require better
service provider networks, but also offer large profit
opportunities for companies like Verizon. The recent addition of
new tablet devices to service providers' arsenal extends these
opportunities.
The penetration rates of smartphones are higher than ever
before, as noted by Verizon during its recent earnings release. The
company stated that it expects its smartphone penetration to
increase from 26% in 2010 to 50% in 2011. That is a very aggressive
target and leads us to investigate what such momentum holds for
Verizon's future.
What Does Rising Smartphone Penetration Mean for
Verizon?
Although Verizon's smartphone penetration is low, the company
stated during its recent earnings release that about 75% of the
postpaid net adds in Q4 2010 were smartphones. It is clear that new
customers are leaning towards smartphones, but older customers are
upgrading as well, as evidenced by Verizon's aggressive smartphone
penetration targets for the coming year. The iPhone is one reason
why Verizon thinks it can achieve these targets.
See our full analysis and $36.62 price estimate
for Verizon
The rising smartphone penetration of Verizon's postpaid
subscriber base, coupled with 4G unlimited plans at $30 and the
possibility of higher pricing as data usage increases, could leave
our data ARPU projections on the conservative end.
In fact, if
average data revenue per subscriber
crosses $32 per month by the end of our forecast period, data
revenues will actually overtake voice revenues, which would mark a
fundamental shift in an industry that began as a means to connect
people via voice. The modifiable chart above illustrates that,
should this pricing scenario materialize, it would imply 5% upside
to our
$36.62
price estimate for Verizon (all else held constant).