Rising Smartphone Penetration Presents Upside to Verizon's Stock Value

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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).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: S , T , VZ

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