The proposed acquisition by AT&T (T) has changed the game for the stock. After years of continuous declines, it has done great over the last few months. The company has been reporting losses for several years, and it carries a huge accumulated deficit. AT&T also has its own problems, and there was an article on seekingalpha which outlined the threat of competition in the near future. Players like America Movil (AMX) and Deutsche Telekom (DTEGF.PK) are offering lower cost, less restrictive prepaid and postpaid services which may hurt the company's topline growth and also put pressure on the margins. The acquisition of leap, which offers such less restrictive services (no contracts, no limits) may help, but it is important that the losses reduce so that Leap becomes a positive contributor soon. There is also indirect competition from the used phone market which is growing fast. Some of the price conscious customers go for previous version of a good quality used high end phones available through companies like Usell.com (USEL). Usell, which provides a platform for buying / selling used phones, reported excellent growth in revenues in 2013. Meanwhile, analysts are not so upbeat on Leap as the stock has already run up quite a bit. Zacks has a neutral rating with the price target at 16, and its analysts anticipate that continued loss of subscribers coupled with significant increase in promotional activities may put pressure on profitability. On the other hand, launch of smartphones coupled with the slashing of non-profitable subscribers may drive ARPU in the near future. There have been other downgrades, like those from Raymond James and Wells Fargo, mainly based on valuations. The stock has already factored a lot of short term positives, and the future is linked to the performance of the entity after the acquisition is completed.
