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Mobile investing opportunities

Cell phone messaging applications may be an attractive, multiyear investment opportunity.

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As the world continues to shift toward mobile communications and social networking, new technologies are emerging that help bridge the gap between these two trends.

One of the fastest-growing segments in this category is "mobile messaging" in the form of downloadable mobile messaging applications. These apps have user-friendly interfaces and were developed primarily for use in smart-connected devices such as smartphones and, to a lesser extent, tablets.

Mobile messaging applications (apps) combine various aspects of text messaging and PC-based social networking to create a new, portable networking platform for those who subscribe to the apps. The downloading of a mobile messaging app is generally free, and the tool offers a variety of user-to-user services, such as:

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  • Free, unlimited text messaging
  • Photos, videos, and music sharing
  • Gaming
  • Free video calls

Unlike open, PC-based social networking services, these mobile messaging apps are based on a more closed, "real" social dynamic. For instance, when a user downloads a mobile messaging app, the contacts in his or her phone directory will automatically show up as “friends.” The assumption here is that the people in one’s phone directory have closer relationships to the user than the sometimes anonymous "friends" on a PC-based social networking platform.

A growth story

The subscriber growth of mobile messaging has exploded in the past several years. This phenomenon has primarily taken hold overseas, especially in China, South Korea, and Japan. It is now gaining traction in Europe and in the U.S., where consumers currently spend an average of 2 hours and 38 minutes per day on smartphones and tablets.1

Nevertheless, industry forecasts suggest that emerging markets will be the biggest drivers of mobile messaging growth going forward. According to the International Data Corporation (IDC) Smart Connected Device Tracker, smart-connected device volume in emerging markets grew by more than 41% in 2012, compared with roughly 16% in mature markets.2

Worldwide, shipments of smart-connected devices grew 29% year over year in 2012. Much of this expansion was driven by a 78% increase in tablet shipments.3 Smartphones and tablets are taking much of the current and future market share of smart-connected devices away from the desktop PC category (see the chart below), a trend that should bode well for mobile messaging applications.

Investment implications

From an investment perspective, the mobile messaging theme may still be in its early innings, and I believe it might present a multi-year opportunity on a global scale. Currently, the market seems particularly enthused about mobile messaging’s potential as a gaming platform. Advertising revenues are also helping to drive the industry’s growth, as more and more corporations leverage mobile messaging as a social marketing platform.

Elsewhere, the adoption of mobile messaging as a viable communications platform could benefit mobile Internet and mobile cloud providers. PC-based social networking companies may also get a boost if their new downloadable apps help increase customers' mobile engagement.

Meanwhile, as the usage of mobile messaging increases, telecom infrastructure operators will be pressured to increase their network capital spending. This should benefit their vendors, specifically communication equipment companies. With carriers competing on network quality, network spending could see a near- to medium-term lift, particularly from smaller operators that need to improve their network quality to compete more meaningfully with larger players in their industry.

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1. Flurry Analytics, as of April 3, 2013.
2,3. International Data Corporation, as of March 26, 2013.
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