Since the onset of the COVID-19 pandemic, communication services have been in high demand as people spend most of their time indoors. The growing inclination toward social media and streaming has led to rising demand for communication services. This trend is expected to continue with digitization and hybrid lifestyles.
Moreover, with the continued expansion of the 5G network and governments’ infrastructure investments, the communication services sector is expected to witness exponential growth. According to a report by Research Nester, the global consumer communication services market is expected to grow at a CAGR of 4% by 2027.
Given this backdrop, Wall Street analysts expect communication services stocks Spotify Technology S.A. (SPOT) and Altice USA, Inc. (ATUS) to rally more than 60% in the next 12 months.
Spotify Technology S.A. (SPOT)
Luxembourg-based SPOT provides audio streaming services worldwide. It operates through Premium and Ad-Supported segments. Its platform includes 406 million monthly active users and 180 million premium subscribers in 184 countries and territories. The company also offers sales, marketing, contract research and development, and customer support services.
On November 11, 2021, SPOT announced it had acquired Findaway, a global leader in digital audiobook distribution. Gustav Söderström, SPOT’s Chief Research & Development Officer, said, "It is Spotify’s ambition to be the destination for all things audio, both for listeners and creators. The acquisition of Findaway will accelerate Spotify’s presence in the audiobook space and will help us more quickly meet that ambition."
SPOT’s revenues increased 24% year-over-year to €2.69 billion ($2.98 billion) in the fourth quarter, which ended December 31, 2021. The company’s gross profit grew 24% year-over-year to €712 million ($788.93 million). Also, its free cash flow came in at €103 million ($114.13 million), up 4% sequentially.
Analysts expect SPOT’s EPS to come in at $1.29 in fiscal 2023, representing a 760% year-over-year increase. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 20.5% year-over-year to $12.94 billion in fiscal 2022. Wall Street analysts expect the stock to hit $247.81 in the near term, which indicates a potential upside of 83.1%.
Altice USA, Inc. (ATUS)
ATUS provides broadband communications and video services in the United States, Canada, Puerto Rico, and the Virgin Islands. It offers broadband, video, telephony, and mobile services to approximately five million residential and business customers. The company's video services include the delivery of broadcast stations and cable networks.
On February 16, 2022, ATUS announced an acceleration of its fiber deployment strategy over the next four years across its Optimum and Suddenlink footprint, expecting to reach 6.5 million passings by the end of 2025. Dexter Goei, ATUS’ CEO, said, "Fiber is the future, and given the progress, we have made at Optimum with our fiber expansion, we’re excited to build on that success and break ground later this year at Suddenlink to bring our advanced network to more customers and communities."
ATUS’ revenues increased 2% year-over-year to $10.09 billion in the fiscal year, which ended December 31, 2021. The company’s operating income grew 19.4% year-over-year to $2.52 billion, while its net income came in at $1.01 billion, representing a 128% year-over-year increase. Also, its EPS came in at $2.14, up 185.3% year-over-year.
For fiscal 2023, analysts expect ATUS’s EPS to increase 7.7% year-over-year to $1.53. In addition, it surpassed Street EPS estimates in three of the trailing four quarters. Wall Street analysts expect the stock to hit $18.16 in the near term, which indicates a potential upside of 64.9%.
SPOT shares were trading at $134.83 per share on Friday afternoon, down $5.09 (-3.64%). Year-to-date, SPOT has declined -42.39%, versus a -9.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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