A few weeks ago, Sprint Nextel (S) launched its Data Link and IP Static products on its 4G LTE network. The products make it easier for businesses and government agencies to manage remote wireless devices in their operations. In this article, I will explain why Sprint will continue its upward momentum and ultimately reward investors along the way. I especially want to show how data traffic will enhance the use of Sprint's Data Link and IP Static products. The development will improve Sprint's fundamentals.
How will Sprint benefit from the new products? In today's competitive economy, businesses generate new revenue opportunities by connecting with other businesses and their employees, leading to increased data traffic. According to Cisco's Global Cloud Index, overall data center IP traffic will rise 31% yearly from 2011 to 2016. Rising data center traffic will create an opportunity for more people to use Sprint's Data Link and IP Static products. This factor will boost Sprint's revenues and improve its price multiples.
The explosion of data traffic has already impacted on Sprint's revenue. In the company's fiscal 2013 first quarter result, the availability of unlimited data led to strong growth in the company's Platform Business, which hit its highest-ever subscriber base and service revenue levels. The need for data grew smartphone revenue, which formed 86 percent of handset sales. The development grew operating income to $29 million, compared with a loss of $255 million in the year-ago total. Net loss was $643 million, compared with a net loss of $863 million in the first quarter of 2011.
"This is a transformative year to Sprint and we've gotten off to a good start," said Dan Hesse, Sprint CEO. "Record Sprint platform service revenues and subscriber levels fueled our performance."
In the company's fourth quarter and Full-Year 2012 results, the need for unlimited data drove Sprint's platform wireless service revenue to $27.1 billion, the highest ever. Full-Year net operating revenue was $35.3 billion, a 5% increase year-over-year.
"Sprint's strong performance was fueled by record wireless service revenue on the Sprint platform due to year-over-year post-paid ARPU growth and Sprint Platform net additions," said Hesse. "As a result, quarterly adjusted OIBDA performance improved year-over-year in spite of significant cost increases related to Network Vision and iPhone, both of which are key investments for our business that we expect will improve the customer experiences and lead to growth in the years ahead."
Data Link and IP Static
Sprint's Data Link and IP Static are preceded by certain certified devices and software. Wireless Data Connection Devices help organizations and companies to expand their capabilities by connecting and sharing services with each other. Sprint's Smartview helps to create a high-speed Internet connection on computers on the Sprint Mobile Broadband Network. Sprint Connection Manager software is to provide solutions for the problem caused by the ever-increasing demand for data management. Sprint's Subscribe Entity has the devices and software available on the Data Link product.
Sprint's Data Link and IP Static will enable corporate networks to purchase a block of IP addresses to ease the deployment of firewall configurations. Organizations can use the Data Link range to establish temporary shelters and back up services to remote monitoring. "Sprint's Data Link and IP Static provide businesses with highly effective tools to deploy and manage wireless devices," said John Dupree, Sprint's sales vice president. "We are well-positioned to meet the demand for reliable, secure mobile data as our business customers take advantage of new technology, chipsets, devices and applications."
Sprint has to create Data Link and IP Static to gain from the increasing amount of data needed by organizations to process and store. Fortunately, the demand for unlimited data is increasing revenues. Sprint needs to gain significant market share if it wants to remain competitive.
When we take another look at the company's financial results, we see that areas impacted upon by increased data demand increased year-over-year. Wireless revenues grew, and smartphone sales skyrocketed. So it can be said that the sectors are operating efficiently.
With a price-to-sales ratio of 0.60, Sprint is cheap, which is encouraging given the company's gross margin of 43.90%. The launch of Data Link and IP Static will boost Sprint's revenue, improve its EPS of -1.37, and perhaps lighten its debt load of around $25 billion.
But how is Sprint performing in relation to rivals? With a price to sale of 0.60, compared with 1.28 for Verizon (VZ) and 1.60 for AT&T (T), and a gross margin of 43.90%, compared with 59.96% for AT&T and 62.84% for Verizon, Sprint is behind its rivals. Verizon's Global Data Link is similar to Sprint's new products in some ways. However, Sprint's Data Link and IP Static are not only on the 4G LTE network, they are compatible with 3G, increasing their revenue-generating potentials. AT&T has a data plan that makes it affordable for people to enjoy the benefits of the mobile market. But Sprint's products are unique because they are focused on business enterprises, a growth area.
Based on the performance of its wireless division and the revenue prospects arising from increased data traffic, we can say Data Link and IP Static will improve Sprint's numbers. However, looking at Sprint's total debt and its inferior price multiples in relation to Verizon and AT&T, we say HOLD Sprint for now.