Sprint (S) has acquired Handmark/OneLouder to drive benefits for mobile app developers, advertisers and consumers. The acquisition of the mobile app developer and advertising company will enhance Sprint's Pinsight media advertising service. In this article, I want to explain how the trend in the mobile app sector will favor Sprint with the new acquisition. I particularly want to show how the mobile app boom will enable Sprint to improve its price multiples. The development will help the company to increase its revenues by 3%.
How will this happen? The app boom has spread globally, and it's no longer just for phones, but tablets and television. According to Strategy Analytics, a research firm, mobile application revenues will increase from less than $1 billion in 2009 to more than $35 billion in 2017. Gartner, the research firm, said global app store downloads would exceed 45.6 million in 2012. Over 89% would be paid apps. Sprint will benefit from this through downloads and luring an increasing number of developers to use its own advertising platform. This will strengthen its revenues and improve its price multiples.
Sprint's acquisition will spur growth. The company's large customer base will serve as a ready market for its mobile app. In the first quarter, Sprint sold more than 1.5 million iPhones. It made progress on its network vision deployment, exceeding 12,000 sites on air, up from 8,000. It further increased its customer base by launching 4G LTE in 88 cities.
"Record Sprint platform service revenue and subscriber levels fueled our performance," said Dan Hesse, Sprint CEO.
In the fourth quarter, Sprint launched 4G LTE in 58 cities to increase its customer base. In a move to boost the use of mobile app, it launched 15 LTE devices including Apple iPad. The company sold 2.2 million iPhones with 38% purchased by new customers. Consequently, the company reported record quarterly and annual Sprint platform service revenues of nearly $7 billion and $27.1 billion, respectively.
"Sprint's strong performance was fueled by record wireless service revenues on the Sprint Platform due to year-over-year post paid ARPU growth and Sprint Platform net additions," said Hesse.
Sprint Mobile App Initiative
Sprint has carried out a number of initiatives to ensure future revenue generation through mobile app and online advertisement. Sprint launched Pinsight Media+ in 2012 to give advertisers the power to reach consumers on their mobile devices. Recently, the company and Time Inc. unveiled a mobile content alliance. In February, Sprint began discussions with Telefonica on developing a mobile advertising alliance that will reach more than 370 million mobile customers.
Sprint's new acquisition will lead to a more robust advertising ecosystem for advertisers and mobile app developers. "Bringing the capabilities of Handmark and OneLouder in-house is an exciting move as we position Sprint for market leadership in emerging mobile products and services," said Mike Cooley,vice president -New Ventures at Sprint."The business, culture, and technology they bring will be a huge asset to our business, and ultimately the customers of Pinsight Media."
Sprint needs to exploit a sophisticated ad platform and develop top-rated mobile apps that meet the needs of millions of customers. This factor will increase its revenues and make Sprint gain advantage over its competitors.
When we take another look at the wireless revenues in the fourth quarter, we noticed that they showed growth year-on-year. New devices, innovations, and emerging mobile products were responsible for this development. So it can be said that the company is making progress in this sector.
With a price-to-sales ratio of 0.62, Sprint is trading more cheaply than its competitors. When the revenue from the new acquisition is consolidated, it will increase Sprint's revenue, improve its earnings per share from -1.37 to 0.2, and bring down its debt of $24.50 billion.
With a price-to-sales ratio of 0.62,compared with 1.56 for AT&T(NYSE:T) and 1.27 for Verizon (NYSE:VZ), and a gross margin of 43.90%, compared with 59.96% for AT&T and 62.84% for Verizon, Sprint is not far behind its rivals. AT&T 's mobile application platform will provide some competition to Sprint. Also, My Verizon Mobile from Verizon provides opportunity for customers to download apps and purchase accessories for devices. With Sprint's new acquisition, it has positioned itself for effective competition with AT&T and Verizon in this department.
Based on Sprint's impressive performance in its wireless sector and network additions, we can say the new acquisition will ultimately improve the fundamentals of Sprint. Looking at its price multiples in relation to AT&T, the growing prospects in the mobile app sector, and its debt, we still say HOLD Sprint for now.
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.