Sprint (S, Financial) has been working hard on its turnaround plan, but it’s facing stiff competition from its smaller rival T-Mobile. The Kansas carrier continued to lose its most profitable mobile phone customers and burn cash in the fourth quarter. And as Sprint is now a part of Japan’s Softbank with 80% ownership stake, its poor results are a drag on its parent.
But all’s not as bad with Sprint. The company retained its position as the third largest U.S. wireless carrier, despite fierce competition from T-Mobile (TMUS, Financial). Let’s dig into the carrier’s latest quarter results and understand its progress.
By the numbers
Sprint reported mixed set of numbers in the fourth quarter. Sprint’s revenue came in at $8.3 billion, down 7% from a year ago quarter. This decline is attributable to the users’ shift to discounted service plans offered by the company. Since August 2014, when Marcelo Claure took over as the CEO, Sprint has come out with a variety of innovative offerings which include iPhone for Life, Cut Your Bill in Half, and Double the Data. Sprint’s marketing efforts are directed toward focusing on remarkably cheaper plans compared with Verizon (VZ, Financial), AT&T (T, Financial), and T-Mobile.
The company’s wireless adjusted EBITDA fell 5% to $1.74 billion compared with a year ago, however the wireless EBITDA margin increased 30 basis points to 25.6% in the fourth quarter. The carrier reported a net loss of $224 million, which translates to $0.06 a share and is more or less in line with analyst expectation. The company had suffered a loss of $0.04 a share in the last year same quarter.
Cash position looks worrisome
Sprint continues to drain cash and reported negative free cash flow of $914 million. But this is better than a negative free cash flow of $1.1 billion the company recorded a year earlier. Sprint is working to increase its market share and attract postpaid subscribers to stay competitive. This is where the carrier is losing cash. And the regular cash burn has become a point of concerns among investors. Sprint’s net debt increased more than $900 million to $29.6 billion in the last quarter, which is lower than the carrier’s market capitalization, making the company appear highly vulnerable.
But the new CEO Marcelo Claure looks very confident regarding the company’s cash position. He told the Financial Times, “If we need more cash we can always sell spectrum, issue cash or go to the bond markets. And we have a very large shareholder who is very supportive…”‰at the moment of truth, if the company needed more money, I think he would provide it.” Claure also said that the company is “getting offers for the spectrum, which becomes an additional source if and when we need it. It’s nice to be in a position where you have something everyone wants”
Marcelo Claure has adopted a turnaround strategy and that seems to be bearing positive results. The effort got reflected in the company’s latest fourth quarter results. Sprint did register customer loss of around 201,000, but it was better than 205,000 subscribers that the carrier lost in the third quarter. The company’s move toward upgrading its network to 4G LTE and closing the iDEN network has helped it improve its network. Sprint has also been cutting costs.
Sprint has also been questioned regarding its capability to sustain its turnaround strategy in case it does not get financial assistance from Softbank and does not have assets to sell. A New Street Research analyst said that the telecom player could raise as much as $12 billion in cash by selling the excess airwaves, so investors need not be worried.
Face off with rivals
T-Mobile’s “uncarrier” approach, AT&T’s aggressive plans such as “Next”, and Verizon’s “More Everything” along with superior network has made the wireless industry extremely competitive. T-Mobile is putting in rigorous efforts to draw consumers from rival network. To counter this, Sprint is offering aggressive promotions to sustain its existing customer base and attract more subscribers on its network.
Sprint’s postpaid net addition has increased for the second quarter in a row. Overall, the carrier recorded a net addition of 1.2 million subscribers which includes prepaid net addition of 546,000 and wholesale net addition of 492,000. In comparison, Sprint had recorded a net loss of 383,000 subscribers in the year ago quarter.
The stronger-than-expected customer addition in the fourth quarter was crucial for Sprint as it helped the company retain its third position with 57.1 million customers in the wireless market. In contrast, T-Mobile ended the latest quarter with a customer base of 56.8 million. It’s, therefore mandatory for Sprint to implement its turnaround plan efficiently. Whether Sprint will be able to maintain its lead over T-Mobile in the upcoming quarters remains to be seen.
