To remain competitive and relevant, telecom companies must continually grow and expand to provide the latest goods and services requested by consumers. In addition to that, these companies must also anticipate future consumer needs and trends. Few telecom companies truly understand these concepts more than Windstream (WIN). Since 2006, the company has expanded its Internet, phone, and other telecom services in both rural and urban territories. Recently, the company launched IP Simple Solutions, an all-in-one IT package for small and medium-sized businesses.
IP Simple Solutions is available nationwide. The bundle includes phone system equipment, VOIP, and data services, making it easier for businesses to operate. Instead of purchasing goods and services from multiple providers, businesses within Windstream territory can now turn to the company for all of their IT needs.
A Little Late in the Game
Normally, an announcement like this would be considered a smart move, as well as a great way to provide quality customer support and outsmart the competition. But other telecom companies, including AT&T (T) and Verizon (VZ), already offer similar services -- and have been doing so for a much longer period of time.
The small business arena has become a hot market over the past three years, with various telecom companies all trying to conquer and dominate. Small businesses are in the unique position of needing the latest products and services, but typically don't have large operating budgets. By offering packages instead of selling only single services, telecom companies help bring down these costs while still providing quality service.
For example, AT&T offers a variety of products and services, including its Mobile Enterprise Applications Platform (MEAP), which helps businesses create and manage apps. At&T also offers small business advice and assistance through written content and webinars. Verizon has also stepped up to help small businesses by providing a host of products and services, including Internet, cell phone, and in-office phone systems.
With heavy hitters like these in the market, lesser known companies like Windstream have to work twice as hard to make an impact. AT&T has done a stellar job by positioning itself not only as a provider of reliable goods and services, but also as a "go-to" database for information, advice and other types of help for those just starting a business. This is an invaluable service that many novice business owners not only need, but are more likely to actively seek out. In addition, this service also helps increase revenue by building a brand that customers can return to again and again when in need of advice or products.
And then there are lesser known telecom companies, like CenturyLink (CTL) and Frontier (FTR), who also offer business solutions products and services to small businesses. Their presence only further crowds the competitive arena.
On the other hand, in areas with fewer telecom options, such as rural territories, Windstream has made its mark by providing quality goods and services in residential areas. And as more and more small businesses begin to pop up in these areas, Windstream may come out ahead, as it already has a local advantage over the competition. But in more populated areas, the competition may be too much.
Depending on how the company plans to market its new small business line of products and services to customers, IP Simple Solutions could take off immediately, or it could take awhile to build momentum.
It's All in the Numbers
Income statements for 2010 and 2011 show Windstream earned $3.71 billion and $4.29 billion in sales and revenue, respectively. Gross income for 2010 and 2011 was $1.61 billion and $1.65 billion, respectively. Even though both years appear similar, the net income numbers are different. In 2010, the company's net income was $310.7 million; and in 2011, $169 million -- a difference of $141.7 million.
This means the company has been on a spending spree. An increase in SG&A expenses ($608.7 million) and an 'unusual expense' ($207.2 million) in 2011 contributed to the difference in net income. Investors will have to pay close attention to upcoming income statements to see if this trend continues. Windstream may already be taking steps to curb its spendthrift ways. The company announced in May that it would cut up to 400 management jobs from its payroll.
To remain profitable, the company must find solid strategies to maintain its current profits while continuing to expand and build its brand. And although this is how most companies thrive, the notoriously fast pace of new technological developments means most telecom companies simply don't have the luxury of expansive market research or product/service testing when it comes to remaining competitive.
A quick look at Windstream's balance sheets for the past two years shows that the company invests much of its earnings in property, plants, and equipment, which makes sense due to its continued expansion efforts. With $15.26 billion in total assets and $13.76 billion in total liabilities, adding new services like IP Simple Solutions may not have much impact on the company's bottom line.
Time to Slow Down?
Windstream may not have a choice when it comes to slowing down its expansion efforts. Investors should remain cautious that the company's legacy of sustained earnings may be a thing of the past -- at least for the time being. Focusing on expanding into new territory and introducing new products and services may be too much of a financial burden. As a result, investors may see a downturn in Windstream's stock price for the remainder of the year.
The Bigger Picture
With all that said, Windstream is still a viable investment opportunity for those seeking long-term investment options. Currently trading around $9.80 per share, the stock has plenty of room to grow. It's unclear how much growth the stock will see through 2012, but Windstream has proven time and time again that it's a winner. An alternative to larger, more expensive investment options, Windstream provides just enough drama, backed by a mostly solid performance for the past six years, to keep investors interested.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.