Tablet Market Surging, Verizon Stock Could Follow Suit
Verizon (NYSE:VZ) competes primarily with AT&T (NYSE:T) and Sprint (NYSE:S) in the mobile business, in addition to other secondary businesses like wire-line communications. Our price estimate for Verizon’s stock stands at $36.62, roughly in line with the current market price.
We previously discussed Verizon’s upside potential in the smartphone business (see article Rising Smartphone Penetration Presents Upside to Verizon’s Stock Value). Now we turn to tablets. Is there upside to Verizon from this product segment, or has the potential growth already been factored into the stock price?
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Tablet Growth
Tablets are growing fast and this means more data revenue opportunities for service providers like Verizon since consumers often prefer a mobile data network for such devices. Goldman Sachs analysts are reportedly anticipating 224% growth in the tablet market in 2011. The report compares this rise to an expected 6% growth in the personal computer market and further suggests that tablets could cannibalize 35% of notebook sales this year. [1] As these additional devices enter the market, service providers will see a sharp increase in the number of U.S. cellular subscribers.
Population Growth vs Cellular Subscriber Growth
If we assume a U.S. population growth rate of about 1% per year through our forecast period, and compare this to our U.S. cellular subscriber forecasts, it seems plausible that there could be roughly 10% more devices in the network than people in the population by the end of this period, as many people use several devices like tablets and smartphones
See our full analysis and $36.62 price estimate for Verizon
If we look at the projected growth in tablets as discussed above, it could very well be that our cellular subscriber forecasts (counting different devices separately) are conservative and thus additional upside to our price estimate for Verizon is possible. You can estimate the potential impact by modifying the trend line in the chart above.
Imagine a hypothetical situation where mobile phones reach 100% penetration and tablets reach 30% penetration in the U.S. by the end of our forecast period. Such a scenario would imply a massive 430 million+ cellular subscribers. This scenario would imply 8% upside to our current estimate of $36.62 for Verizon. We note that this scenario only takes tablets and mobile phones into account. Other connected devices like smart grids, smart cars, e-readers and alarms present incremental opportunities.
Notes:- A Research in Motion Tablet Play, Barron’s, Feb 23 2011 [↩]