Pacific Crest Securities has lowered its revenue estimates for Verizon and AT&T ahead of the carriers’ upcoming earnings reports, citing weaker than expected upgrade rates.
In a note released on Tuesday, senior research analyst Michael Bowen said a recent Pacific Crest survey indicated a decline in upgrade rates. As a result, Bowen said the firm has lowered its revenue projections for AT&T from $41.8 billion to $41.3 billion and Verizon from $32.7 billion to $32.1 billion.
Bowen said the upgrade cycle appears to have hit an “air pocket” thanks in part to a “lack of compelling features” in recent device launches. The result, he said, is that customers are holding off on upgrades as part of a “wait-and-see approach.”
Upgrade rates are expected to pick back up as usual during the holiday season in the fourth quarter, Bowen said.
Notably, however, Pacific Crest let its previous predictions for Sprint and T-Mobile stand.
“We are not changing estimates for T-Mobile or Sprint based on our findings, as we believe the carriers with leasing options could actually see their upgrade rates increase,” Bowen said. “T-Mobile remains our top pick as strong trends continue.”
Pacific Crest also said its survey indicates T-Mobile will post strong net additions in the first quarter, many of which have come from consumers switching from Verizon and AT&T. Bowen said the switching trend is expected to continue and may spur Verizon and AT&T into action with increased promotions. Bowen said net additions for Sprint have slowed relative to the firm’s previous expectation.
The report supports similar assertions favoring healthy net additions for T-Mobile from Wells Fargo Securities and Consumer Intelligence Research Partners (CIRP).
CIRP’s survey – like the one from Pacific Crest – found T-Mobile pulled 42 percent of its new device activations from customers switching from competitors. While Sprint also pulled a substantial 30 percent of new customers from switchers, CIRP found the Un-carrier lost only 18 percent of customers to the competition, compared to 27 percent at Sprint.
Late last week, Wells Fargo predicted T-Mobile will be the only carrier to achieve first quarter growth in net additions. That conclusion, however, drew apparent skepticism from Sprint CEO Marcelo Claure, leading some to believe Sprint may be in a better position than analysts realize.
Verizon will lead off the carrier earnings reports starting tomorrow and will be followed by AT&T on April 26 and Sprint on May 3. T-Mobile has not yet set a date for its report.
