T-Mobile / Sprint: Strategic Direction Is Bullish For Carrier-App Developers

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I read a great write-up from 451 Research on the T-Mobile / Sprint merger this morning. I used to be a client of 451 and thought highly of their work.

A few quotes stood out:

“If the deal goes through, the US will be left with three mega-carriers that focus primarily on wireless but have also placed unique digital consumer content, Internet of Things (IoT) and entertainment stakes in the ground for their digital futures with AT&T buying DIRECTV and attempting to nab Time Warner Cable. Verizon has created Oath (AOL/Yahoo) while also spending billions to build its enterprise IoT fleet telematics business.”

This rings true. From what I’ve read and observed, Sprint has become a lot more strategic and aggressive about offering consumer services, especially those tied to IoT.

These are two areas where SMSI has been establishing some leadership with Safe & Found and its QuickLink IoT offerings.

“Sprint has historically been more aggressive on the business side, focused heavily on mobile connectivity and collaboration, network services like SD-WAN, and an IoT unit that has tried to carve out wins for both connectivity and industry applications in a handful of targeted areas. In the IoT segment, Sprint fights above its weight with nearly 14 million active lines but has struggled to find places it can differentiate itself beyond solid connectivity.”

According to my due diligence, with Safe & Found in the fold, Sprint will continue to fight above its weight in 2019. They plan to offer an array of IoT devices to bolster the value of S&F and expand its reach beyond families to include anyone who has anything of value (pets, bicycles, handbags, etc).

By the end of 2019, they could be enabling that… along with family tracking and application monitoring / use-scheduling / control and website white-listing / black-listing, and some yet-to-be-discussed home automation capabilities… all under one application umbrella.

I have little doubt that SMSI can bring all of that functionality together. The recent improvements to Safe & Found have been impressive and rapid. Further, the company has invested over $80 million into R&D and M&A over the past 5 years, so it’s clear that they’re not shy about innovation.

The problem in recent years has been monetization of their efforts.

However, that’s now changing. Recent actions (and CEO Smith’s increased stake in the company) make it undeniable that monetization has become the name of the game… and if they do a half decent job of unlocking that value, they will also (finally) unlock the $50+ million value of their tax assets.

“Not surprisingly, the deal is being touted as a force for ‘positive change’ with economies of scale to provide US businesses and consumers with lower prices and higher-quality services as a result of the level playing field.”

“The new T-Mobile is being positioned to continue to play its consumer- and business-friendly Un-carrier role and wants to get ahead of the pack with aggressive rollout of national 5G connectivity and targeted over-the-top services. Bringing advanced services and choices to rural Americans is one of the headline promises of this transaction.

This dovetails with what I’ve been saying about the carriers fighting to differentiate themselves and monetize / lock-in their customers base. My research and discussions with industry insiders make it clear that this is what makes Safe & Found so important to Sprint.

Make no mistake, Sprint isn’t waiting around for their merger with T-Mobile to be approved — it might not be. Accordingly, everything I’ve seen shows that they are continuing to compete aggressively against T-Mobile (along with AT&T and Verizon) for customer mind-share and market share.

By the way, Safe & Found isn’t the only strategic app for Sprint. They are also marketing a mobile data / cyber security app, called “Lookout”. According to IDC, Lookout leads all players in its combination of capabilities and strategic vision.

This exemplifies Sprint’s commitment to partnering with best-of-breed application developers. FYI, Lookout is also partnered with AT&T and T-Mobile. They also attracted a $150 million Series F round of funding at a $850M pre-money ($1B post-money) valuation.

Of course, I’m not comparing SMSI to Lookout. They’re completely different companies at completely different stages… but its great company to be keeping. More importantly, we are now seeing signs of the Sprint Safe & Found roll out ramping up…

IMG_1923
Lookout and Safe & Found being promoted at a Sprint store in California

As I’ve been saying, momentum finally appears to be building. See my other reports for details and stay tuned. Cheers!

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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

7 thoughts on “T-Mobile / Sprint: Strategic Direction Is Bullish For Carrier-App Developers

  1. From all your research as well as the work of many others everything seems to be falling into place, and with the large overhang of selling and short selling dissipating the future for SMSI looks strong, obviously being there’s such a large shareholder base of hedge funds and money managers who own Sprint I cannot figure out why they haven’t begun accumulating SMSI a bit prior to what looks like a strong ramp UP in the shares. Afterall with hedgies etc. looking for returns bigger than their competitors it would seem prudent to get in ahead and pick up 8%-12% larger gain in share price. (I know ~10% gain in SMSI isn’t enough to really juice returns of a multi-billion dollar fund but every bit adds to the 2&20)

    Like

    1. It doesn’t work that way. Hedge Fund managers have chargers that dictate what they canning cannot buy. Some have free reign, while others can’t buy a stock that’s for example, under two dollars… or under $100 million market cap… or etc. etc.

      By my reckoning only about 300 people know about the stock right now. We know a lot so it seems like everybody should, but there’s been no reason for anyone to hear about this…. YET

      Liked by 1 person

  2. In regards to lookout, I had it for years. I finally uninstalled it because it was slowing down my phone and causing too much battery drain. I don’t know if they fixed those problems yet or not but I’m not inclined to download the app again.

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    1. Years is good! 😂 seriously though, the company has $1 billion valuation for a reason. Personally, I love seeing safe and found being the marketed alongside it, especially since security companies are hot on companies like Life360 and Location Labs. SMSI would make a perfect acquisition for them.

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