In this market, it's often difficult to find a company about to turn into a low-risk investment. Towerstream Corporation (NASDAQ:TWER) provides a unique opportunity to investors before we public learn more about the new carrier contract impact on the bottom line. Although we would like TWER's CEO Jeff Thompson to be more transparent, investors typically do not discover a company ahead of Wall Street because 1) few investors listen and analyze management conference calls, 2) their non-disclosure agreements with mobile carriers, 3) SEC regulation FD (fair disclosure) limitations, and 4) management credibility to never overpromise.
This article is intended to provide retail investors information ahead of the crowd. TWER has the potential to help carriers solve problems with bandwidth use explosion. TWER is now focusing its business model on Internet access service and backhaul, which will be absolutely necessary for the future of all major wireless carriers to stay competitive. As reported by the Brooking Institution, the debut of new mobile broadband products from the likes of Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Nokia (NYSE:NOK) will increasingly place growing demand on the wireless broadband Internet connections.
We know TWER has strong fundamentals based on 1) stable basic business wireless Internet access service, 2) a history of making cheap acquisitions with no dilution, 3) new Wi-Fi and small cell business available at 10,000 locations, and 4) three national carriers already signed up to use the backhaul business. A separate backhaul market for small cell has emerged. We know cellular operators are currently looking to small cells (picocells and microcells) as a way to improve network capacity and better use their existing spectrum resources. Large telephone cellular carriers are knocking on TWER's door because they are faced with one of the biggest challenges involved in deploying their own small cells since figuring out how to cost-effectively backhaul the traffic from those small cell sites is extremely difficult. For example, FierceWireless reported Sprint Nextel (NYSE:S), which purchases a lot of its backhaul capacity from incumbent local exchange carriers and cable TV providers, revealed in an FCC filing that the company "has found that wired network operators are charging the same backhaul rates for microcells, covering small areas, as they charge for connections to macrocells with much wider coverage and generally much heavier use."
According to Sprint, this pricing scheme, "makes network expansion through microcells much more difficult." TWER is a specialist in this area. Infonetic Co-Founder Michael Howard said large U.S. operators that are planning to use wireless technologies for their small cell backhaul "we have spoken with said that about 80 percent of their small cells will be connected using three types of wireless backhaul -- microwave, millimeter wave and licensed non-line of sight." While do not know the identity of the large carriers involved in the TWER deals, we expect to know sometime around the end of the year. We think revealing the identity of at least one of the carriers could cause the stock to shoot up. My educated guess says its either AT&T (NYSE:T) or Verizon (NYSE:VZ). The recent carrier deals demonstrate TWER has transformed itself into a leading wireless backhaul specialist, which guarantees that private businesses, mobile carriers and cable operator have the reliable transmission capacity to deliver voice and premium data services to their customers.
TWER has sealed deals with Boingo Wireless (Wi-Fi) and Skype, both of which have partnered together to include Towerstream's state-of-the-art Manhattan Wi-Fi network within the Skype WiFi hotspot footprint. On Dec. 6, 2012, in a press release TWER announced it continues to book a record number of contracts for its fixed broadband enterprise business. Additionally, the company announced that it is waiving the fee for its "Rapid Install" solution to businesses in San Francisco. Matt Tooker, VP of sales, said that "we are ending the year in a strong position," and that "month after month businesses in the country's largest markets are realizing the value of having a reliable broadband solution that is able to be turned up at a moment's notice. Towerstream has spent years building a tremendously loyal customer base and it is great to see our momentum continuing to increase. We look forward to a strong 2013."
One of the clear advantages TWER can offer enterprise customers is a "dual entry" broadband strategy. Major carriers offering enterprise broadband in large cities do it by bringing fiber optics cable up through the basements of large downtown buildings. As we know, the flooding from Hurricane Sandy disrupted a number of these services. TWER's microwave radio signals are transmitted through rooftop antennas. While these can be affected by high winds, TWER's system showed resilience by surviving even Hurricane Sandy and Hurricane Irene.
It is not uncommon at all for a large enterprise that must maintain Internet connectivity to contract with dual sources, but often that means two companies bringing fiber in through the basement. I suspect a number of companies in New York City and the surrounding area that depended on these traditional fiber connections learned the hard way about the inherent weakness of the design and either switched to TWER or contracted with TWER to provide backup connectivity.
TWER has been making key non-dilutive acquisitions in large markets. I expect they will continue to make non-dilutive acquisitions. TWER will likely do a debt deal of some kind to raise capital to expand the Wi-Fi locations to 20,000. TWER has zero debt. TWER has plenty of free cash flow. TWER's solid recurring revenue stream would make them a low risk to a lender, and with the projected revenue can easily afford to take on debt to expand its network into the top 20 major cities it currently services.
On Nov. 8, 2012, during their quarterly conference call management gave a perfect example of profit potential here. CEO Jeff Thompson hinted $500 per month for revenue growth from potential node rental. If, for example, AT&T uses half of the TWER locations currently in existence, the revenue adds up quickly: $500 x 5,000 = $2.5 million a month = $30 million a year. This is explosive revenue growth from just one customer with just half of the current deployment locations used. Needless to say, TWER will be flush with cash very soon. TWER has strong customer loyalty and is a much lower risk than currently perceived by analysts.
Given the progress the company is making in several aspects of their business, I would want to be in this stock in the first quarter of 2013. Don't pass up this opportunity; the stock price will continue to move higher from its current price. Now is an excellent time to add to your stock positions before Wall Street analysts discover the momentum of the company's fundamentals by the first quarter of 2013.
Disclosure: I am long TWER. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.