), which primarily competes with AT&T (
) and Sprint (
) in the mobile business, has traditionally heavily relied on
Blackberry smartphone sales. In 2009, more than 80% of Verizon's
smartphone sales were attributable to the Blackberry, whose
customers also tend to generate the highest levels of average
revenue per user (ARPU).
What a difference a year makes. Verizon's mix of smartphone
sales has witnessed a dramatic shift during 2010. Surging sales of
smartphones utilizing Google's (
) Android OS have seemingly flipped the balance of power away from
the previously dominant Blackberry. According to ITG Investment
Research, Android-based smartphones accounted for over 80% of
Verizon's smartphone sales during November 2010.
The result left Blackberry with just a 19% share, with Palm OS
and Windows Mobile phones accounting for the balance. We note
that the drastic shift is partially attributable to a spike in
sales from customers seeking the latest technology, but believe
that the growing market share of Android-based smartphones is a
notable trend that could provide real upside to our price estimate
for Verizon stock.
Our price estimate for Verizon currently stands at
, nearly 10% below market price. We estimate that mobile phones and
plans constitute about 42% of Verizon's stock value.
We recently wrote an article wherein we quantified the immediate
revenue impact for Verizon from a shift to Android-based phones
(from Blackberry), and we noted that the initial impact on data
revenues from this replacement effect would be minimal. (
Android vs. Blackberry, Does Verizon Gain on
) However, the complementary impact of increased voice and data
plan revenues after this replacement effect finishes should have
longer term implications that could generate upside to our price
estimate for Verizon.
Greater Smartphone Diversity Could Attract New Customers
A shift in mix of smartphone sales from Blackberry to
Android-based phones reduces manufacturer related risk and allows
for a wider assortment of products available to customers. This is
because Google's Android OS has been adopted by several mobile
phone manufacturers and, because of its popularity, almost 300,000
android phones are being activated each day.
As evident from the findings of ITG Investment Research,
Verizon's handset mix has added a new level of diversity over the
past year. The expanded product offering could accelerate
smartphone subscriptions from new customers as well as existing
customers that are compelled to upgrade by the larger range of
options. As we've previously noted, Android can also trigger
increased sales by featuring its larger app store (at roughly
70,000 apps) than available on Blackberry (10,000 apps).
A faster adoption of smartphones could provide long-term upside
beyond our base projections across both voice ARPU and data ARPU,
as the functionality of smartphones typically warrants service plan
premiums. Looking at voice subscription plan pricing alone, if
Verizon is able to maintain current levels through our forecast
period, it could generate more than 5% upside to our price
estimate, bringing our number in line with market price.
You can drag the trend-lines in the charts below to see the
impact of your own monthly voice and data ARPU projections on
Verizon's stock value. Let us know your viewpoint on these key
metrics by providing feedback in the comment box below.
You can see
the complete $31.69 Trefis price estimate for
Verizon's stock here.