Crown Castle posted relatively solid quarterly earnings and bumped its guidance for 2016, capping what had been a nervous couple of weeks for investors in light of reports of a major network transition by Sprint (NYSE: S).
The Houston-based tower company reported $945.8 million in revenue for the quarter ending Dec. 31, marking 2.2 percent year-over-year growth and topping analysts' estimates of $928.5 million, according to Thomson Reuters. Crown Castle also said CFO Jay Brown will take the helm at the company June 1, replacing current CEO and President Ben Moreland.
Crown Castle shares sank nearly 6 percent two weeks ago following a report from Re/code that Sprint had finalized plans to transition its network away from land leased from tower companies, moving aggressively to small cells on more affordable, government-owned land. Shares of American Tower, another Sprint partner mentioned in the report, sank on the news as well, indicating that investors might have seen Sprint's reported transition as indicative of a larger industry trend toward small cells and other new technologies and strategies that would be detrimental to existing tower companies.
But Sprint earlier this week in an earnings call said "the information wasn't correct in that report," adding that it planned to use small cells to complement macrocells rather than replace them.
"The idea that Sprint could transition its macrosites off of traditional towers and replace them with smaller sites on alternative structures turned out to be a mere flash in the pan," MoffettNathanson wrote in a research note on Crown Castle's earnings. "The commentary on Sprint's earnings call with respect to towers bore no resemblance whatsoever to the now infamous Re/code article. If anything, that a company in genuine financial distress concluded it couldn't really do anything to reduce its base of business with the Towers is a real validation of the business model."
But while Sprint's reported strategy "was simply not plausible on many levels," according to MoffettNathanson, investors' reaction to the report underscores the fact that mobile networks in the U.S. aren't evolving in lockstep anymore. While the networks of major U.S. carriers have generally transitioned from one generation to the next simultaneously, multiple technologies and strategies are being employed as the market begins to evolve beyond 4G to 5G. So while the business model employed by tower companies is still important and viable, the market is becoming more complex.
"We tend to focus more on the long-term fundamentals of the companies we cover," MoffettNathanson wrote. "But we'd be ignoring reality if we didn't acknowledge that the narrative is also important, and it is oftentimes the confluence of the narrative and fundamentals that drives real outperformance. The narrative of the last several days -- simultaneous network upgrades by all four carriers -- is now more nuanced."
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