Sprint (NYSE:S) has announced that the LG Optimus F7 will be available on its 3G and 4G LTE network. The product will enable Sprint to enhance its smartphone portfolio. In this article, I want to explain how a rise in the worldwide smartphone spending will help Sprint to increase its wireless revenue by 1% with the new product. This factor will help Sprint to improve its price multiples.
How will Sprint's fundamentals show an improvement? The overall smartphone sales have continued to show an accelerated growth. Gartner, an industry researcher, predicts that the worldwide smartphone market will show an explosive growth in 2013 by having a sale of close to 1.2 billion units. The rise in the smartphone adoption means an increase in the net additions to the 3G and 4G LTE network of the carriers. This will boost Sprint's wireless revenues.
Sprint's sales growth is a certainty. Its experience in the smartphone sector has already boosted its platform wireless service revenues. In the first quarter, the smartphone sales formed 86% of Sprint's quarterly platform postpaid handset sales. The development boosted Sprint's platform subscriber base to 53.9 million The platform wireless service revenues grew to $7.1 billion, an increase of nearly 9% on a year-on-year basis.
In the fourth quarter, Sprint sold more than 4 million 4G LTE smartphones. Consequently, the company's wireless service revenues for the Sprint platform grew 12% on a year-on-year basis for the quarter and nearly 15% for the 2012 full year.
Sprint and Smartphone Portfolio
Sprint has carried out many initiatives to boost its smartphone portfolio in the last few months. The company in March offered a savings of up to $150 for the small businesses who purchase any smartphone device. The company launched an initiative in January to offer a $70 monthly plan for the purchase of a smartphone. Sprint also organized a program for its mobile virtual network operators to place their brands into an unsold Sprint Android smartphone.
The new initiative will enable Sprint's partner organizations to provide their customers with an Android device without a contract. Sprint will benefit through an addition to its already extensive platform subscriber base.
Sprint needs the new product on its 3G and 4G LTE network to meet its 2013 wireless revenue target. Fortunately, the worldwide spending on the smartphone is showing a great improvement.
Looking at Sprint's recent reports, we note that the smartphone portfolio is boosting the platform subscriber base through the handset sales and the net additions. This translates to an improvement in the company's platform wireless revenues on a year-on-year basis. It is clear that Sprint is making a progress with its smartphone portfolio. So it can be said that the portfolio is operating efficiently.
With a price to sales ratio of 0.60, Sprint is trading cheaply. This is understandable given that the company has a gross margin of 43.90%. The new addition to the company's smartphone portfolio will increase the quarterly wireless revenues, enable Sprint to meet its revenue targets, and improve its earnings per share.
With a price to sales of 0.60, compared with 1.46 for AT&T (NYSE:T), and 1.20 for Verizon (NYSE:VZ), a gross margin of 43.90%, compared with 59.96% for AT&T and 62.84% for Verizon, Sprint is not too far behind the competition. Verizon and AT&T have the smartphone portfolio and are Sprint's greatest rivals. However, the new addition to the Sprint network will enable the company to remain competitive.
There is a risk inherent in the purchase of a Sprint's stock. The company currently has an EPS of -1.36 and is burdened with a heavy debt load. But based on the quality of the new smartphone product and the rise in the worldwide spending on the sector, we can say the solution will lead to a new addition to the Sprint subscriber base and an increased wireless revenues. Looking at its price multiples, we still say HOLD Sprint for the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.