AT&T: Small Business Could Drive Near-Term Gains

| About: AT&T Inc. (T)

According to the Small Business Administration, there are roughly 23 million small businesses operating in the U.S. For most telecom companies, that's a pretty large market. And with current changes to small business marketing strategies, especially the growing popularity of mobile marketing, small businesses need all the help they can get to stay profitable and relevant to new and existing customers. Unfortunately, it has been estimated that only 75% of small businesses have active websites, 31% of which can be accessed using a mobile device. In the following article, I will explain why AT&T (T) is in a unique position to help small businesses succeed through its service offerings and educational programs, and how this could positively impact its stock.

First, lets take a look at the telecom market and smaller business relationship as a whole. As more and more telecom companies realize the income potential of the small business market, new and easy-to-use tools and software are available to help these businesses attract new customers while maintaining consistent contact with existing ones. From an investment standpoint, it's important to understand the various markets in which companies sell their goods and services to determine if a company is doing everything it can to maintain a strong presence. It's fine for companies to become active in multiple markets, but each market must yield adequate revenue or the endeavor becomes pointless.

Merely selling products and services that help small businesses manage mobile marketing campaigns is not enough to satisfy this market. It is through education, information, and helpful advice that position a company as the 'go to' company when small businesses decide to invest in updated equipment, software, and other items. AT&T has done a fantastic job in not only recognizing the needs of small business customers, but also providing education and other tools necessary to help businesses succeed.

Mobile Friendly

To allow customers easier access to websites, landing and order pages when on the go, businesses oftentimes create apps that people can run on their mobile phones. And while creating an app may not seem too difficult, many businesses just don't have the resources or skills to develop functional apps for mobile marketing. AT&T is currently working to help small business customers worldwide by providing tools like MEAP (Mobile Enterprise Application Platform) that assist business owners in creating and managing apps. In addition to MEAP, AT&T offers a variety of products and services such as phones and tablet computers, VOIP, local and long distance phone plans, Internet service, and online advertising assistance.

AT&T Cloud Architect

In addition to helping small businesses create and manage apps, AT&T also created the cloud architect. The cloud architect helps app developers create new apps quickly and store finished apps on a cloud-based storage platform. This helps reduce the cost of web hosting while allowing developers to share their apps with others.

Competition for AT&T in app creation and management could be tough as other established companies have provided similar services for longer periods of time. Amazon (AMZN), for example, manages Amazon Web Services, a group of online tools aimed at helping web developers, Internet marketers, and others promote online businesses, develop and manage apps, and store information on a cloud-based platform for easy sharing.

Google (GOOG) also provides a wide variety of online tools to help developers build and manage apps for mobile devices. Both Amazon and Google also manage online app stores where people can purchase and download a variety of apps.

Teaching Small Businesses

Reaching out to small businesses by helping to expand their knowledge base when it comes to running a successful business benefits AT&T by helping to solidify its brand in the small business market - which hopefully leads to increased sales and revenue. For example, the company recently hosted a webinar aimed at helping small businesses grow.

By answering common questions small business owners have and by teaching simple ways to improve marketing and customer service, AT&T ensures that current customers remain successful and profitable. Happy, successful customers means long-term business for AT&T.

AT&T also recently introduced its 'Quick Check for Disaster Prep' online tool that helps small businesses gauge how ready they would be if a natural or man-made disaster were to strike today.

I believe AT&T's willingness to reach out to small businesses will be a strong catalyst for its business and stock in the coming quarters.

Key Points Investors Need to Remember

There are three key points investors need to remember when it comes to investing in telecom companies like AT&T. First, is to make sure that the company takes into consideration current and future trends in specific markets to develop new and useful products customers can readily use. Second, investors should take a look at how a company interacts with customers. Web-based activities like webinars, checklists, and surveys help companies reach out to customers to provide information and also to conduct market research.

Third, investors need to gauge the market's response to the efforts a company makes to sell its goods and services. For example, AT&T reported that sales of small business tablets tripled in just one year's time. This means that customers have taken notice of the many products and services AT&T makes available to small businesses. Through a database of free information, online lectures, and simple-to-use tools, AT&T has successfully marketed its brand to reflect not only quality goods and services, but also as a company that really cares about its customers.

Investors should look at quarterly cash flow statements as these statements show how AT&T spends its money. For example, at the end of Q1 2012, the company had net operating cash flow of $7.8 billion as opposed to $7.5 billion at the end of Q4 in 2011. But when it comes to capital expenditures/sales, the cash flow statement shows -13.59%. This means that the company isn't spending much in new products and services. This could indicate the company will continue to focus on existing products and services. If this trend continues, the company may become overshadowed by the competition. Investors may have to pull back and invest in other telecom companies that spend more on innovative products and services.

Investors should also review quarterly income statements to determine how much AT&T earns or losses each quarter. For example, at the end of Q1 2012, AT&T earned $31.82 billion in sales before taxes and operating costs. Net profits were $3.58 billion. The company spent 8.25B in SG&A Expenses (expenses for marketing, certain operating costs, and administrative costs).

This is about half of what the company spent in Q4 2011 which may indicate that the company is pulling back its marketing efforts for the time being, or it may launch additional market campaigns in the upcoming months. Investors should continue to invest in AT&T and review future income statements for changes in SG&A - if there's no increase or if there is an increase, but a drastic decrease in net profits, investors should consider investing elsewhere.

Increased Competition

One major stumbling block that investors can't ignore is the competition in the small business arena. Other companies like Apple (AAPL), Microsoft (MSFT), and telephone and Internet service providers like Sprint (S) all offer similar products and services aimed at small businesses. But what will eventually separate companies from each other is the level of customer service and information provided.

Apple provides a variety of products such as Mac PC's, iPads, iPhones and business, apps, and software to help small businesses run more effectively and efficiently, with room to grow. Microsoft offers similar products to Apple along with Office 365, a cloud-based suite of products aimed at small business management. Sprint, meanwhile, recently updated its Biz 360 products and services to cater to even more small business customers.

Despite this competition, I think AT&T's stock is headed higher in the coming quarters. Its ability to tailor its products and services toward small businesses is impressive. I urge investors to buy AT&T, and hold until atleast the end of 2012 for what will likely be decent gains.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.