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What’s Level 3 Communications’ Goal for Its Enterprise Component?

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Level 3’s goal for its enterprise component

During the recent J.P. Morgan Global Technology, Media and Telecom Conference, Jeffrey K. Storey, Level 3 Communications’ (LVLT) CEO, reiterated the company’s goal with respect to the growth of its enterprise component. He highlighted that “we have a goal, this isn’t guidance that we have a goal of getting to an 8% year-over-year kind of 2% sequentially revenue growth coming from enterprise, core network services.”

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Regarding the company’s strategy in terms of product mix to achieve this goal, Storey mentioned that by “making sure that we are selling ethernet services, making sure that we are selling IP VPN that we’re disproportionately winning when we sell ethernet and IP VPN [ph] some security (21:44) and all of those things. Those are all growth products, and so we are overly indexed to the growth products and less indexed to the declining products.”

Growing contribution of Level 3’s IP and data services

In terms of contribution, IP and data services represented ~44.8% of Level 3’s revenue in 1Q16. This is a growth driver for the company. During 1Q16, Level 3’s revenue from the stream grew ~4.2% YoY (year-over-year) to ~$0.92 billion.

It’s worth noting here that YoY, the company’s overall core network services revenue increased ~1% to ~$1.9 billion during the quarter. According to the company, the YoY growth in revenue from IP and data services in 1Q16 came mostly from virtual private network services as well as bandwidth to enterprises.

For diversified exposure to select telecom companies in the US, you could consider investing in the SPDR S&P 500 ETF (SPY). SPY held a total of ~2.7% in AT&T (T), Verizon (VZ), CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications at the end of May 2016.

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