Dare to Look Beyond Sprint’s Bottom Line?
Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The third-largest wireless carrier of the US, Sprint Nextel (NYSE: S) came out with its fiscal 2012 second quarter earnings recently. Though the bottom line seemed not that attractive and was in the red as Sprint reported increasing losses, it gave its investors a reason to smile as the company displayed steady fundamental growth with better than expected revenues and consistent Apple (NASDAQ: AAPL) iPhone unit sales. The stock price of Sprint jumped as much as 20% to $4.05 as an instant reaction to this news. The company is going through a rough phase and is focusing on a turnaround, the chances of which are looking more promising with this quarter’s performance. Let’s check out how the quarter went for this telecom service provider.
A quick look at the quarter
Sprint topped analyst estimates as it reported revenues of $8.8 billion, signifying a 6.5% increase over the prior year period. Despite this decent top line growth, the bottom line was pulled down by the $783 million accelerated depreciation, $184 million lease exit costs, and $204 million impairment related to Sprint’s investment in Clearwire (NASDAQ: CLWR). Because of these expenses, Sprint reported a $1.4 billion loss, resulting in a loss per share of $0.46 as against $0.41 loss per share expected by analysts. In the fiscal 2011 second quarter, the company had reported a net loss of $847 million or $0.23 per share.
Though Sprint’s plan to do away with its older Nextel network is costing the company hugely, it is fitting well into the entire network overhaul plan called Network Vision. This quarter, the company posted some pretty impressive numbers too. Sprint recorded a postpaid ARPU of $63.38, higher by $4.31 from the year ago quarter, making it almost touch AT&T’s (NYSE: T) ARPU level. The company also reported the best-ever Sprint platform churn rate of 1.69%, down from 2% of the previous quarter. Sprint ended the quarter with a total subscriber base of 56 million users out of which 32.6 million were postpaid subscribers.
What’s going on?
Sprint is putting in substantial efforts to improve its current situation. This quarter, one primary focus point of the company was to convert as many Nextel customers as possible to Sprint customers instead of letting them migrate to rival Verizon’s network, and it seems the marketing strategies paid off big time as 60% of customers who left Nextel moved to Sprint. Still there are another 4.4 million subscribers in the Nextel platform and Sprint needs to push itself harder to get a huge chunk of subscribes into its new platform.
The company also tasted success related to the roll out of its 4G LTE technology. The technology is already available in 15 cities and Sprint expects to have 12,000 LTE sites and cover more than 100 million customers by the end of 2012. Sprint is also in talks with big players of the mobile phone market to add hardware support for its 4G network. This quarter four handsets debuted on Sprint’s network – Galaxy nexus, Samsung Galaxy S III, LG Viper 4G LTE and HTC EVO 4G LTE. The company also announced plans to launch the Motorola Photon Q 4G LTE handset soon on its network.
Performed better than the peers
Verizon (NYSE: VZ), the largest wireless US carrier, and AT&T, the second-largest carrier, recently reported their quarterly results and among these biggies and Sprint, our company has by far done the best when it came to the iPhone sales growth. Whereas Verizon witnessed a 16% drop in shipments followed by AT&T’s 14% drop, Sprint reported a steady activation of 1.5 million units. On top of this, of Sprint’s total iPhone activations 40% were to new customers as against Verizon’s 25% and AT&T’s 22%.
However, if we look at volumes, Sprint with is 1.5 million figure falls much below AT&T’s 3.7 million shipments and Verizon’s 2.7 million shipments. This is because Sprint is not as big a company as the other two. So, keeping size in mind if we reduce the other two on a proportionate basis, then we will see Sprint actually emerges as a winner.
Concluding thoughts
Sprint’s efforts are paying off. The company showed good revenue growth even in this instable market environment. Sprint is trying to make the most of its contract with Apple. The company is the only one among the top four US wireless carriers to provide the unlimited data plan. This might be a point of advantage. Once the 4G LTE technology rolls out in its network, Sprint will be able to provide data plans to iPads also. However, Sprint needs to accelerate its 4G LTE development work as it still is a lot behind Verizon and AT&T.
With decreasing churn and increasing ARPU, Sprint is looking promising even though it could not deliver positive returns. Profit is something that will come slowly and eventually for Sprint if the company is able to stay on track and steadily improve its hold on the situation. The coming quarter will see a light influence of the forthcoming holiday season, though the prime rush will only be seen after Apple launches the iPhone 5. On this note, let’s keep a positive outlook toward this stock with eyes closely set on every big and small movement.
analyse360degree has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
