AT&T (T), which competes with wireless service providers like Verizon (VZ) and Sprint (S), derives more than 9% of its value from enterprise services. These services essentially consist of (a) voice and data communication services (b) application and content management, for business customers.
AT&T plans to invest about $1 billion in 2010 to expand its application services and cloud-based services for large businesses globally, as well as expand its small business services in the US. The investment plan for business services is part of the company’s existing capital spending plan of around $18-$19 billion for 2010.
AT&T’s enterprise revenues have declined over the years as a result of increasing competition from other telcos and cable operators, which are becoming more active in the corporate space. We believe that this investment will help AT&T revive its declining enterprise business. Below we discuss why the corporate space is critical to AT&T, and how improved growth in revenues can help AT&T’s stock.
Improving Economy and Increasing Data Speeds Present Multiple Opportunities in Corporate Space
With the improving economy, businesses are expanding their IT budgets and investing in infrastructure. This, combined with the availability of faster internet speeds, presents an opportunity for AT&T to expand its services like internet security, application management, content delivery, conferencing, telepresence and mobile applications.
Expansion of businesses into the cloud has additional challenges like increased security requirements and improvement of application performance over the cloud. AT&T can capitalize on the opportunities created by these trends to drive growth in the revenues that it earns from businesses.
Stemming Decline in Enterprise Revenues Means 6% Bump to AT&T’s Stock
AT&T’s enterprise revenues have declined in recent years due to a slowdown in economy resulting in cutbacks in IT spending as well as rising competition from other telcos and cable providers. AT&T’s investment in its business services is an attempt by the company to reverse its declining revenues. We estimate that if the company’s enterprise division can return to modest (positive) growth in 2010, there could be upside of about 6% to 7% to our estimate for AT&T’s stock.
You can modify our forecast above to see how AT&T’s stock price could be impacted AT&T’s enterprise revenues were to have positive, rather than negative, growth.
DIsclosure: No positions