For the last couple years, investors have known that growth in the U.S. wireless space is getting more difficult to achieve. With smartphones and tablets now a mature market, it is now time for wireless companies to find growth in the Internet of Things. That’s exactly what AT&T (T) is doing.
On Tuesday, the company made a slew of Internet of Things announcements in the auto, healthcare and connected city industries. These are initiatives that AT&T is pushing forward in 2016 and will be a big driver for AT&T stock.
What’s AT&T Stock Doing?
The Consumer Electronics Show in Las Vegas has become a destination for big news in the industry, and AT&T’s decision to use the platform for its Developer Summit did not disappoint.
AT&T is officially rolling out Smart Cities with a slew of partners in technology that will initially target Chicago, Atlanta and Dallas. These are huge cities that are sure to keep AT&T busy for a while, using technology to make them safer and more efficient.
AT&T provided an example of using sensors to detect water leaks and damage within city infrastructure, allowing those in charge to identify problems faster with fewer interruptions for consumers. Obviously, such technology would be very useful following hurricanes or ice storms to quickly restore power, but also during rush hour, to better control traffic.
Furthermore, these are sensors that can be used in hospitals to collect vital signs and help with surgeries or diagnosis. These can also be paired with other technology to control lights, thermostats and security within the home.
In the auto market, AT&T has partnered with Ford (F) to bring its 4G LTE network to 10 million vehicles by 2020. This will piggyback the success that AT&T has already experienced in the Connected Car, which has driven most of its subscriber growth over the last two quarters. Connected Car users receive speed alerts, maintenance notices and a slew of applications, along with the ability to communicate with businesses (like personalized insurance quotes based on driving).
In other words, AT&T and wireless networks will be connected to anything and everything, and 2016 is the kickoff party to this new Internet of Things era.
How Much Data, You Might Ask
Anytime a “thing” collects and sends data, it also consumes data. Despite smartphone and tablet use being a fully penetrated market in the U.S., Cisco still predicts that mobile data consumption will grow at a compound annualized rate through 2019. Specifically, mobile data will grow from 4.2 exabytes per month in 2015 to 24.3 in 2019. That growth will come from all of these connected things in homes, cities, cars and the healthcare and energy sectors, among others.
One example comes from sensors that are being used on cattle to tell farmers when animals are sick or pregnant. Each cow with this technology consumes 200 mb of data per year. Yes, that’s a tiny amount of data, but there are a lot of cows in the world, and this is an Internet of Things use that consumes far less data than sensors that detect traffic and automatically adjust street lighting according to that data. So, some things will consume more than data than others, but it all combines to equal an enormous amount of data.
With that said, AT&T will collect revenue and profits from the Internet of Things just like it does with consumers. It will charge cities, organizations and individual consumers with connected homes and cars based on how much data they consume. Collectively, if this causes data consumption to rise from 4.2 EB to 24.3 EB, then AT&T is going to have a terrific opportunity for revenue and profit growth.
What Does It Mean for AT&T Stock?
With AT&T stock trading at just 14 times free cash flow, this potential for growth becomes a huge catalyst. AT&T is believed to have grown 12% last year, and is expected to grow another 14% in 2016. However, most of that outlook is based on the addition of DirecTV and two wireless companies in Mexico.
Analysts are not figuring rapid organic growth, and for this reason, AT&T stock looks really good right now.
As of this writing, Brian Nichols owned T stock.
