Leap Wireless International Inc. (LEAP) posted mixed financial results for the fourth quarter of 2011. Though EPS managed to beat the Zacks Consensus Estimates, revenue significantly fell below it.
During 2011, Leap wireless restructured its business model through which it is emphasizing on the high ARPU generating smartphone customers, while shedding less profitable wireless broadband subscribers as these users generally place huge load on its network. Management is hopeful regarding its business strategy for future subscriber growth.
Nevertheless, precipitous economic volatility in the U.S. is a major concern since the company is primarily dependent on the low-income customers, who are very much susceptible to economic downtrend. Meanwhile, competition in the low-end prepaid wireless services market has become intensely competitive. We therefore reaffirm our long-term Neutral recommendation on the stock.
Leap Wireless is operating in an intensely competitive domestic low-cost prepaid wireless market. Besides, competing directly with MetroPCS Communications Inc. (PCS), the company has been increasingly challenged by aggressive roll-outs of competitive price plans by some of its larger rivals to capitalize on the attractive growth opportunity in the prepaid segment.
In particular, Sprint Nextel Corp.’s (S) prepaid subsidiary Boost Mobile is gaining market share. Sprint is gradually increasing its penetration into the prepaid segment and acquisition of Virgin Mobile U.S.A. further strengthened its market position.
Moreover, America Movil S.A.B.’s (AMX) Tracfone has introduced a $45 monthly unlimited voice and text plan. Increased market penetrtaion of these services have resulted in customer defection and reduced profit margin.
Recently, the two largest nationwide carriers, viz., Verizon Wireless and AT&T Inc. (T) entered the wireless prepaid phone market after the growth rate of lucrative postpaid wireless market slowed. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD).
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
LEAP WIRELESS (LEAP): Free Stock Analysis Report
METROPCS COMMUN (PCS): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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