Sprint is Racing Ahead - Should You Take Notice?
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sprint’s (NYSE: S) share price has certainly been sprinting ahead since January. The company’s stock price managed to clock more than a 100% gain on a year-to-date basis while peers AT&T (NYSE: T) and Verizon (NYSE: VZ) saw relatively modest gains for the same period.
Sprint has had to painstakingly compete for subscribers with two of the largest telecom service providers, Verizon and AT&T, all while restructuring its operations due to its epically bad acquisition of Nextel. But despite all this and the huge run-up in Sprint’s share price, the stock got an upgrade by Nomura Securities from “Neutral” to “Buy”, with a loftier price target of $7.
Now with Nextel’s operations due for closure by the middle of next year, can Sprint really look forward to bringing its bottom line out of the red?
A Successful Turnaround in the Cards?
Well, Sprint hasn’t been able to turn a profit since 2007, though the company has managed to make many improvements in its operations.
Sprint’s revenue grew consistently since 2010, and even managed to outpace revenue growth of peers Verizon and AT&T. Total subscriber numbers increased by an impressive 42% over the past two years, and ARPU (or average revenue per user) moved up to an all-time high of $63.38.
Sprint is still aggressively expanding its 4G LTE footprint as it recently announced plans to roll out its all new network in an additional 100 cities. As it builds its new network, Sprint would definitely be able to realize greater cost savings and efficiency in terms of spectrum usage, besides being able to offer superior coverage and service quality. By 2013, Sprint expects to successfully complete the build of its nationwide 4G network, which should help it catch up with larger rivals.
With the roll out of 4G-LTE, Sprint hopes to shift many of its Nextel 2G subscribers to its new network. So far, Sprint has been able to boast of a recapture rate of more than 50%. This means that more than 50% of Nextel’s former customers have migrated to Sprint’s core network. Out of these customers, the most noteworthy can be the Federal Emergency Management Administration (FEMA), which used Nextel’s network specifically for its push-to-talk feature. Since Sprint has announced a similar service known as Direct Connect, the organization has agreed to hop over to Sprint’s network services.
More Reasons to be Optimistic
While Sprint may be behind Verizon and AT&T in terms of subscriber count, it certainly seems to be ahead in terms of offering customer satisfaction. According to the 2012 American Customer Satisfaction Index, Sprint grabbed the number one spot among all other national carriers. Moreover, the company has also been ranked the highest in “Wireless Purchase Experience Satisfaction” by J.D. Power and Associates. And why shouldn’t it be?
With the explosive popularity of smartphones and tablet devices, quality mobile data services at affordable prices has become the need of the hour. For penny pinching consumers, Sprint’s truly unlimited plans have been nothing short of a dream come true. Customers with data hogging devices such as Apple’s (NASDAQ: AAPL) iPhone would certainly appreciate the comfort of not having to fear steep monthly bills for using data beyond a certain limit. And speaking of Apple’s iPhone, Sprint definitely stands to gain a lot from the iPhone 5’s success.
Yes, subsidizing the iPhone 5 for customers will prove to be a huge financial burden. But with $6.7 billion in cash and short-term investments on its balance sheet along with strong operating cash flows, I feel that Sprint is well prepared to take on such a burden. Offering the iPhone 5 would certainly be a great opportunity to grab a sizable chunk of new customers who would start using Sprint’s new 4G LTE network. But things aren’t going to be that easy...
Not that Easy, Baby!
Before the company can start generating profits, it would have to completely do away with its burdensome Nextel operations. After which, it would have to attract more customers while retaining existing ones. Might sound easy, but when you are competing with two of the biggest players in the wireless space who are significantly more resourceful than you, things can become a little tricky.
Offering low priced plans may attract a lot of customers, but it also entails forgoing a lot of potential profits. Besides, the room for error is very small here. If Sprint’s low priced plans do not attract enough customers to create economies of scale, its bottom line could go deeper into the red. And if its plans are priced too high, the company would not be able attract more customers to even give rise to the possibility of a turnaround.
The Foolish Bottom Line
Sprint has made good progress over the past few years and if things go as planned; the company’s efforts should translate into a turnaround. I suggest keeping a close watch on the company’s progress for now, but on the whole, I feel that Sprint looks like a pretty good bet for the long run.
So what do you guys think of Sprint’s future? Feel free to express yourself in the comments section below.
Compare and Contrast
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kekidf 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.