New Cloud Ready Applications Drive Growth
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CenturyLink (NYSE: CTL) recently announced that its company, Savvis, is collaborating with VMware to expand the Savvis Enterprise Cloud Ecosystem Program. The program will now include cloud-ready applications from the VMware Cloud Application Marketplace. Below, I will explain how the prospects surrounding CenturyLink's new solutions will help make the company a more attractive investment.
CenturyLink's sales are improving due to the company's continued investment in solutions, which enhance shareholder value. The company has been able to successfully integrate its solutions with its revenue and growth projections, increasing revenue contribution through strong demand for its network services from its many customers.
Due to this, CenturyLink recorded $4.61 billion in operating revenues for the second quarter of 2012, compared with $4.41 billion for the second quarter of 2011. The increase was due to the rise in strategic revenue primarily driven by demand for high bandwidth data services, growth in high speed internet connections, and higher data integrated revenues. CenturyLink added more than 18,000 high-speed customers, and improved from its year-over-year decline seen in the second quarter of 2011.
"CenturyLink continued to generate solid results in the second quarter, maintaining our top-line revenue trend improvement and strong cash flow generation," said Glen F. Post, III, chief executive officer and president. "We successfully completed our operating group restructuring during the second quarter without disrupting the positive sales momentum across our business and believe that CenturyLink is even better positioned to serve our enterprise customers across the United States and internationally.
Over the past few months, CenturyLink has launched many of its solutions into the market. It launched a small and medium sized business hosting platform. It enhanced its Prism TV offering with Microsoft's (MSFT) Mediaroom. It combined the strength of its national network with its industry-leading portfolio of Savvis cloud services for the United States launch of Savvisdrect, a simple, cost-effective cloud computing solution for businesses of all sizes. Its company, Savvis, expanded IT infrastructure capabilities with Symphony Cloud Storage. CenturyLink completed an upgrade of its network and delivered speeds of 100 Gigabits per second (Gbps) nationwide across its backbone and in more than 50 metropolitan locations across the United States.
"Our strategic revenues continued to increase in our regional markets and enterprise operations," said Post. "We are pleased with the continued progress we made during the third quarter toward stabilizing top-line revenue, and we believe our continued investment in our key strategic opportunities will help drive enhanced shareholder value."
With the expansion of the Savvis Enterprise Cloud Ecosystem, CenturyLink's clients will have access to a wide variety of open-source packages and commercial applications contributed by leading software vendors, hardware vendors, content providers, and system integrators.
"The integration of our cloud ecosystem with the VMware Cloud Application Marketplace significantly transforms and expands our application catalog," said David Shacochis, Vice President of Savvis Cloud Platform.
CenturyLink announced net income of $544 million for the nine months ended September 30, 2012, compared to $464 million for the nine months ended September 30, 2011. Operating revenues for the nine months ended September 30, 2012 was $13.79 billion, compared with $10.70 billion for same period in 2011. Net cash provided for operating activities in the nine months ended September 30, 2012 was $4.68 billion, compared with $3.47 billion for the nine months ended September 30, 2011.
In the third quarter, CenturyLink reported strong operating revenues, operating cash flow, and free cash flow. Operating revenues reached $4.57 billion, compared to $4.60 billion in the third quarter of 2011. Its operating cash flow increased $1.90 billion, up from $1.88 billion recorded in the third quarter of 2011. It achieved an operating cash flow margin of 41.5%, compared to 41% in third quarter of 2011. Adjusted net income for the third quarter 2012 was $413 million, compared with pro forma adjusted net income of $377 million in third quarter of 2011. Operating expenses, excluding special items, decreased to $3.86 billion from $3.94 billion in the third quarter of 2011.
Comparing CenturyLink's solutions to its financial statements in 2012, the company has improved its market position compared to 2011. In addition, the company's revenue compression in some quarters has been marginal, so the company is operating at an efficient level.
How is CenturyLink performing compared to its competitors? With a gross margin of 61%, compared with 55% for AT&T (NYSE: T), 41% for Sprint Nextel (NYSE: S), and 60% for Verizon (NYSE: VZ), and price-to-earnings ratio of 37.70, compared with 44.01 for AT&T and 38.64 for Verizon, CenturyLink appears to be ahead of its rivals.
AT&T, Verizon and Sprint have all been engaged in a battle to gain additional wireless spectrum. The explosive growth in high-speed wireless Internet will only lead to increased profitability for these companies if they have enough spectrum. Without sufficient spectrum, they cannot offer wireless services.
The FCC has been pressured to make more spectrum available. Throughout 2012 we have seen carriers engage in spectrum-driven partnerships. A deal with Comcast (CMCSA) allowed Verizon to buy an unused block of bandwidth for $3.6 billion in August 2012. In October 2012, AT&T received approval to operate in Sirius XM’s spectrum. AT&T and Verizon have already raised data prices to manage increases in demand as they scramble to acquire more spectrum. Spectrum also acted as a driving force in Softbank's pending investment in Sprint, and in Sprint’s plan to take over Clearwire.
Looking at CenturyLink's new solutions and improving margins, CenturyLink appears to be a solid investment at the moment.
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