Zayo may be bracing for some near-term headwinds with wireless operator customers planning their 5G and small cell strategies, but once those builds get underway the service provider could gain a set of new wholesale fiber service revenue benefits.
Cowen and Company wrote in a research note that they expect Zayo will report fiscal second-quarter 2017 bookings of $5.3 million, implying 3% organic growth.
“It appears certain customers who otherwise were expected to sign deals with Zayo have elected to wait until they have a clearer picture of the roadmap ahead,” Cowen and Company wrote in a research note. “We believe this could limit NT [near-term] revenue upside, although at the same time (perhaps ironically) we are incrementally more positive in the LT [long-term] opportunity.”
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The research firm said that Zayo will benefit from the fact that “the need for fiber is rapidly increasing both as a result of 5G/small cells and accelerated adoption of cloud that is driving demand from the clouds themselves as well as those wanting to connect to them.”
However, Cowen and Company cautioned that bookings could be lower in the next few quarters due to Zayo’s management comments “that suggest that recent wireline M&A and potential wireless M&A have created “uncertainty” that we do not expect to be resolved within a single quarter.”
What has likely influenced Cowen and Company’s near-term thesis are comments made by Zayo CFO Ken desGarennes during Citi’s 2017 Internet, Media & Telecommunications Conference in January.
At that time, desGarennes said the outlook was less clear because a number of potential wireless and wireline acquisition deals were still in flux.
“The most recent and interesting trend is all this consolidation adds to the scarcity value of the fiber, but I also thinks there’s a little uncertainty now and somewhat from how will 5G be rolled out and what’s the pace of deployment,” desGarennes said. “More recently with the change in administration it feels like there’s a sense that many of these consolidation or combinations that were off the table are now back on the table.”
DesGarennes added that “as big customers think about their strategy they have to factor into that calculus what potential combinations are out there and how those look.”