SBA Communications (NASDAQ: SBAC) is achieving its 5 percent annual growth target. The company is performing well despite site development delays from T-Mobile (NASDAQ: TMUS), COVID-19 impacts on its global operations, and economic slowdowns particularly in international markets.
SBAC operates mainly as a macro tower company with more than 32,610 towers in 14 geographic markets including the U.S., Canada, countries in Central and South America, and South Africa.
Of SBAC’s total tower base at end 2Q20, the U.S. domestic market accounts for 16,478 towers or 51 percent of the total, while International markets tally the remaining 16,132 towers.
In the quarter, the company acquired 16 existing towers, 8 in each region, and built 79 new towers, 92 percent of which were in international markets.
Here’s the big difference though. Despite a nearly even split of towers between Domestic and International markets, SBAC derives 80 percent of its site leasing revenues and 83 percent of operating profits from the Domestic market.
Domestic and International 2Q20 site leasing revenues each grew 5 percent compared to 2Q19 to $388 million and $94 million, respectively. Operating profit margins grew in each region, up 1.6 percent in the Domestic market and up 2.8 percent in International markets.
Across the board, other financial metrics were up. Tower cash flow, Adjusted EBITDA and AFFO all grew at high single-digit rates on a year-to-year basis.
Site development revenues for 2Q20 were down by 40 percent compared to 2Q19. The drop was attributed to TMUS’ delayed network rationalization and 5G build activity that were expected soon after TMUS’ merger with Sprint.
SBAC now gauges TMUS’ delay at 90-120 days, but expects to earn back those revenues through 2H20 and into early 2021, as TMUS picks up its network expansion pace.
This is a key point. SBAC’s business is highly concentrated.
TMUS is SBAC’s single largest customer accounting for over 40 percent of Domestic site leasing revenues and 32 percent of SBAC’s global site leasing revenue sources. TMUS along with AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ) account for more than 91 percent of SBAC’s U.S. site leasing revenues.
Similarly, Oi Mobile in Brazil is SBAC’s largest customer outside of the U.S., accounting for nearly 29 percent of International site leasing revenues. Behind Oi Mobile, Telefonica and America Movil combined account for another 33 percent of the company’s overseas business.
SBAC emphasized that international demand remains strong. Even with several markets hit hard by COIVD-19, SBAC anticipates only temporary capital spending slowdowns by some of its international wireless carrier customers.
With nearly 75 percent of its site leasing revenues coming from the Big 3 mobile network operators in the U.S., what are SBAC’s revenue growth opportunities?
Optionally, it can: add new customers to its existing towers, add new tower and rooftop sites to support new 5G network builds, or it can add new billable services.
On this latter point, SBAC is learning about mobile edge computing at tower sites.
The company already has test sites operating in the Northeast. Recently, it acquired a data center in Jacksonville, FL (referred to as Jacksonville Network Access Point or JaxNAP) which will serve as a connection junction and data storage point to support mobile edge computing at tower sites.
SBAC explained that it could offer mobile edge computing several ways.
As a landlord, it could simply rent a concrete pad at the tower base and provide connections to data centers for tenants to install and operate their own mobile edge computing equipment. Alternatively, SBAC could lease the passive infrastructure and power, and let the tenant install and operate the active computing gear.
Or SBAC could “run the whole thing” and simply lease mobile edge computing services to its carrier customers.
The company is assessing the best approach. SBAC sees mobile edge computing as a revenue-generating service offering that complements its site leasing revenue model.
By John Celentano, Inside Towers Business Editor
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