Sprint Can Expect 45% Upside if Smartphone Strategy Works

| About: Sprint Corporation (S)
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Sprint (NYSE:S) is betting on a stronger smartphone portfolio to reverse the recent trend of on-going subscriber losses. Verizon (NYSE:VZ) and AT&T (NYSE:T) will prove to be tough competition as these carriers are also focused on smartphones which offer higher potential subscriber revenues.

We currently have a Trefis price estimate of $4.35 for Sprint’s stock, about 9% above the current market price of $4, and there could be more than 45% upside to our estimates if Sprint’s smartphone strategy pays off, leading to a doubling of the company’s average data (internet, SMS) revenue per user over our forecast period.

New Smartphone Lineup

Smartphone selection is important in attracting and retaining new customers, and Sprint has traditionally lagged behind its competitors AT&T and Verizon with its lineup. However the company claims its new lineup promises to impress.

According to the company, its Samsung Epic 4G (launched in Q3 2010) and HTC EVO (launched in Q2 2010) are the two best rated smartphones on the market in PCWorld’s rankings, even ranking ahead of the iPhone 4 and android based devices [1]. Additionally, the company also states that ZDNet ranks HTC EVO as the best smartphone on the market.

We attribute about 60% of Sprint’s mobile phone revenues in Q3 2010 to smartphones [1]. In light of this trend, we expect that mobile phone revenues will reach close to $2.4 billion in 2010 from $1.95 billion in 2009, a healthy 23% increase [2].

Although demand for smartphones will drive Sprint’s mobile phone revenues higher, Sprint will end up paying higher subsidies for such phones and will consequently need to make up the cost of the phones through higher subscriber revenues.

Smartphones Drive Higher Data Revenues

Given the higher revenues anticipated with smartphones, we expect the average revenue per user (ARPU) to increase by about 15-20% which Sprint hopes will compensate for the upfront loss on the handset. Average revenue per user consists of two parts: (1) voice ARPU (2) data (internet, SMS) ARPU. Smartphones primarily drive higher data ARPU.

We estimate that Sprint’s monthly data ARPU has more than doubled over the last four years and estimate that it will increase from about $15 in 2010 to nearly $19 by the end of our forecast period. However, there could be an upside of 45% to the Trefis price estimate for Sprint’s stock if the company’s data ARPU were to double again, reaching $30 by the end of the Trefis forecast period, as more Sprint subscribers adopt smartphones.


  1. Taken from Sprint’s Q3 2010 earnings transcript
  2. Taken from Sprint’s SEC filings

Disclosure: No positions