Wednesday, September 13, 2006

When in doubt, hedge your bet.

Market: MVNO Business Model
Stock: ESPN,Helio,Amp'd
Risk: depends/read post for details

This market simply asks, which of the following cell phone companies will go out of business first. The choices are Virgin Mobile USA, Helio, Amp'd Mobile, ESPN Mobile, and Movida. Let's take a quick look at each of these companies' profiles.

Virgin Mobile USA
This company is not going out of business (at least for a long, long, long time). They've had 3,000,000+ subscribers since the beginning of 2005. Virgin has been in the US MVNO market the longer than anyone else (about four years). They have carved out a rather large niche with its prepaid service. Virgin Mobile USA should be eliminated from any consideration for this market.

Helio

This company aims to take the Korean cell phone model to the US. It focuses on providing a rich data experience. Its key feature is that it is the only carrier that allows its users to access Myspace on the phones. However, its business model has been problematic. First off, they take a huge loss on each new subscriber ($300)and its phones are very expensive ($250-$275). This brings up another problem for Helio: one of its two handet manufacturers has filed for bankruptcy. Helio's founder Sky Dayton has said that his company will need around 3,000,000 subscribers to recoup the its investment. However, Helio has been reported as having fewer than 10,000 subscribers. Yikes. Helio's problem is that it is overly ambitious. It thinks that it can take the US market by storm and bring a foreign business model onto US soil. Helio has also anounced that it will open retail stores where users can "hang out". This is ridiculous.
Keep Helio under consideration.

Amp'd Mobile
Amp'd, like Helio, focuses on a rich media experience. And also, like Helio, is plagued with low subscriber numbers. However, it does have a pre-paid plan. Also, its phones are cheaper.
Keep Amp'd under consideration

ESPN Mobile
This phone pretty much caters to sports bums. We all know them. These are the people who have NFL Sunday Ticket, check their fantasy team stats compulsively and just cannot get enough Sportcenter. This seems good, but their subscriber numbers are low.
Merril Lynch expects them to sign up around 30,000 subscribers which is waaaay below estimates of 240,000.
Merill Lynch is no moron. Trust it, because while you're betting inkles, Merill is betting in real Dollars.
Keep ESPN Mobile under consideration.

Movida (sorry, no English site)
Movida is part of Sprint's attempt to tap into the 40,000,000 strong Latino American population. With prepaid plans and being the first to enter such a market, don't expect Movida to go bust anytime soon.
Remove Movida from consideration.

This leaves us with Helio, Amp'd, and ESPN. This is also where you will hedge your bet. As of Sep. 13, Helio traded for 23 Inkles, amp'd 25, and ESPN 21. My recommendation: buy all three of those. It's too tough to definitively determine which company sucks the most. So hedge your bet. One share of each company on Sep. 13 would cost a total of 69 Inkles. Once on of these three goes out of business, this "triple share" will be worth 100 Inkles. You will get about a 45% rate of return. This is riduculously high considering the low risk involved. Let's not kid ourselves here. There is no, no, no way Virgin Mobile is going under anytime soon. We also know that Mexicans will appreciate the first carrier catering to their Spanish-language needs. And we do know that these other three companies are doing awful.
Happy hedging.

UPDATE: ESPN Mobile is dead.

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