Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Can Sprint Learn From SoftBank and Yahoo! Japan?

Much has been made about the possibilities of Sprint's  (NYSE: S  ) turnaround following its acquisition by SoftBank and its extremely wealthy leader, Masayoshi Son.

Can the company overcome the 2.5 million lost wireless accounts year to date while competitors like Verizon  (NYSE: VZ  ) and AT&T  (NYSE: T  ) added 1.7 million and 2.1 million, respectively? And how?

A recent policy change at Yahoo! Japan may be key in answering those questions.

Market share above all
In Japan, there's a price war between online marketplaces run by Yahoo! Japan and Rakuten. Both sites allow users to list items, but now, it will be free to list things on Yahoo! compared to Rakuten's fee of roughly 10% of sales. Rakuten has been growing share much faster than Yahoo!, a 17% increase in volume for Rakuten compared to only 4% for Yahoo! last quarter, so the move will hopefully stem falling market share and help drive traffic and advertising revenue. Since the change in policy on Oct. 7, Yahoo! has received 26,000 applications for new marketplace accounts. This is substantial, as there are only 20,000 stores on Yahoo! currently.

What's the connection to Sprint? Son's SoftBank owns 43% of Yahoo! Japan, with U.S.-based Yahoo! owning 35%. And now, SoftBank owns 80% of Sprint.

Margins to fall
The change at Yahoo! Japan caused its share price to fall 10% during the week, with Rakuten's share's falling 19%. Even though this will hurt profits in the short term, management obviously believes this will be better for the future of the company in the long term. And it's that kind of thinking that will help Sprint regain wireless market share, while eroding margins across the industry.

Verizon's wireless segment operating margin, less depreciation, sits around 22%, AT&T's at 38%, and Sprint's at 18%. Those healthy margins are all at risk if Sprint enters into a pricing or feature war. And, just like with the Japanese online marketplace, share prices are not priced for any such downward trend in earning potential.

One such change to grab more customers is allowing those who pay for their devices in installments to upgrade every 12 months, instead of the previous two years. Sprint also announced its unlimited talk, text, and data plan with a guarantee for life this summer, capitalizing on the recent data caps and discontinuation of such unlimited plans from the major carriers.

Looking long term
Like at Yahoo! Japan, Sprint may very well take short-term financial suffering if it can win customers with more features or lower prices. And while there are more barriers to switching cellular providers than online marketplaces and strength of networks matter, if the trends at Sprint turnaround, expect revitalized interest in its stock and falling margins at competitors to match Sprint's offerings.

Not the only cell phone fight
Who provides your service isn't the only bet to make if you're investing in telecom -- device makers are also in heavy competition for market share. However, there is one company that sits at the crossroads of smartphone technology as we know it. It stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access The Motley Fool's latest free report: "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2682642, ~/Articles/ArticleHandler.aspx, 9/30/2016 4:44:34 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:01 PM
S $6.66 Down -0.12 -1.77%
Sprint CAPS Rating: **
T $40.73 Down -0.12 -0.29%
AT and T CAPS Rating: ****
VZ $52.12 Up +0.06 +0.12%
Verizon Communicat… CAPS Rating: ****
YHOO $42.57 Down -1.12 -2.56%
Yahoo CAPS Rating: **